Final Review Flashcards
Porter’s 5 forces
threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes
5 forces in the airline industry
low entry barriers, powerful suppliers, powerful buyers, strong substitute threat, intense rivalry. low overall profit potential, an unattractive industry for investment
strategic planning model
environmental analysis, formulation, implementation, execution and control
environmental analysis
internal strengths and weaknesses, external opportunities and threats
formulation
goal, mission, objectives. STRATEGY held up by organizational structure and policy guidelines
implementation
budgets, programs, procedures
execution and control
monitor feedback
value
customers willingness to pay maximum price, sometimes called the reservation price
cost
cost to produce the good/service directly impacts the profit margin
profit
difference between the price charged and the cost to produce or (P-C)
stages of life cycle
introduction, growth, maturity, decline
introduction
R&D, tech change, attention to quality, design change, process cange
growth
improve product, economies of scale, process improve, distribution, value added, forecasting
maturity
focus on standardizing, efficiency, cost cuts, few changes, optimal capacity
decline
cost control, reduce capacity, cut products
competitive advantage
always relative, not absolute, compare to benchmark. strategy is not a grandiose statement, managers must met competitive challenge
organizational performance is determined by
industry effects and firm effects
industry effects
caused by the structure of the industry
firm effects
caused by the actions of management
merger
combining two companies usually similar in size, the friendly approach
acquisition
purchase or takeover of a company, can be friendly or can be a hostile takeover through stockholders
why do firms enter strategic alliances
strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary assets, learn new capabilities
merging with competitors
horizontal integration: process of merging and acquiring competitors.
benefits of merging with competitors
reduce competitive intensity, lower costs, increased differentiation, access to new markets and distribution channels
strategic alliance
a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
strategic criteria
an alliance qualifies as strategic only if it has the potential to affect a firm’s competitive advantage
rational view of competitive advantage
framework where critical resources and capabilities are embedded in strategic alliances that span firm boundaries
governing strategic alliances
non-equity alliances, equity alliances, joint ventures
non-equity alliances
partnership based on contracts between firms. The most frequent forms are supply agreements, distribution agreements, and licensing agreements
explicit knowledge
knowledge that can be codified, concerns knowing about a process or product
equity alliances
partnership in which at least one partner takes partial ownership in the other
tacit knowledge
knowledge that cannot be codified, concerns knowing how to do a certain task and can be acquired only through active participation in that task
joint venture
a standalone organization created and jointly owned by two or more parent companies. strong ties, trust and commitment that can result. used to enter foreign markets
most common forms of alliance
supply agreements, distribution agreements, licensing agreements
three options to drive firm growth
organic growth through internal development, external growth through alliances, external growth through acquisition
the build borrow or buy framework
aids strategist in deciding whether to pursue internal development (build), enter a contract arrangement or strategic alliance (borrow), acquire new resources, and competencies (buy)
alliance management capability
a firms ability to effectively manage three alliance tasks concurrently. 30-70% of alliances yield disappointing results
three alliance related tasks
- partner selection and alliance formation
- alliance design and governance
- post formation alliance management
M&A and Competitive Advantage
many M&A actually destroy shareholder value. when there is value it often goes to the acquiree, acquireres tend to pay a premium
why still desire M&As?
principal agent problems, overcome competitive disadvantage, superior acquisition and integration capability
globalization
a process of closer integration and exchange between different countries and peoples worldwide
globalization made possible by
falling trade and investment barriers, advanced telecommunications, reduced transportation costs
globalization 1.0: 1900-1941
only sales and distribution took place overseas, knowledge flowed one way; home to international
globalization 2.0: 1945-2000
duplicating business functions overseas, knowledge flow back to headquarters remained limited
globalization 3.0: 21st century
MNE reorganizes to a more seamless global enterprise, MNEs become global collaboration networks
what defines a U.S. company
address, investment
address
IBM, GE, and others are U.S. companies…despite the fact that a majority of their employees work outside the U.S.
investment
carmakers from Japan and South Korea and engineering companies. all have made significant investments in the U.S., also created a large number of good jobs
globalization has two consequences
- rising wages and other costs 2. as the standard of living rises in emerging economies
rising wages and other costs
may negate any benefits of access to low cost input factors
as the standard of living rises in emerging economies
MNEs are hoping that increased purchasing power will enable workers to purchase the products they used to make for export only
Why go global?
gain access to a larger market, gain access to low cost input factors, develop new competencies
gain access to a larger market
MNE has opportunities of scale and scope, firms in smaller home markets
gain access to low cost input factors
labor, natural resources, technology, logistics. professionals less expensive in China and India
develop new competencies
location economies, polycentric innovation strategies
Does GM’s future lie in china
market opportunity in china (1.4 billion and onle 1 in 100 own a vehicle), GM entered china in 1997, 70% of GM revenues outside the US
Disadvantages of expanding internationally
liability of foreignness, loss of reputation, loss if intellectual property
liability of foreignness
additional cost of doing business in an unfamiliar cultural and economic environment
loss of reputation
globalizing a supply chain can have unintended effects. this challenge directly concerns the MNEs corporate social responsibility
loss if intellectual property
large scale infringements in software, movie, and music
CAGE Distance Framework
a decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance
cultural distance
increased distance with: different languages ethnicities, religions, social norms, and dispositions; lack of connective ethnic or social networks, lack of trust and mutual respect.
administrative and political distance
distance increases with: absence of trading bloc, absence of shared currency, monetary or political association, absence of colonial ties, political hostilities, weak legal and financial institutions
Geographic distance
distance increases with: lack of common border, waterway access, adequate transportation, or communication links, physical remoteness, different climates and time zones
economic distance
distance increases with: different consumer incomes, different costs and quality of natural, financial, and human resources, different information or knowledge
how to enter a foreign market
low investments and low level of control, high investments and high level of control
low investments and low level of control
exporting, licensing, franchising
high investments and high level of control
joint venture, acquisition, greenfield operations
structure
determines how the work efforts of individuals and teams are orchestrated and how resources are distributed
culture
collectively shared values and norms of an organization’s members; a key building block of organizational design
control
internal governance mechanisms to align the incentives of principals (shareholders) and agents (employees)
organizational design
goals is to translate strategies into realized ones. structure, processes, and procedures
implementation (the graveyard of strategy)
poor implementation leads to loss of market value
structure follows strategies
therefore structure must be flexible
organizational structure
defines how jobs and tasks are divided and integrates, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, prescribes how individuals and teams are coordinate their work and efforts
key building blocks of sructure
specialization, formalization, centralization, and hierarchy
specialization
degree to which task is divided
division of labor
large firms may specialize, small firm may have an accountant be more of a generalist and take on different roles
formalization
codified rules and formal procedures, detalied written rules and policies
centralization
where the decision is made, top down strategic planing
decentralization
planned emergence
hierarchy
formal, position based reporting lines
hierarchy: tall vs flat
tall structure: higher degree of centralization
flat structure: lower degree of centralization
span of control
number of direct reports to a manager
organic organizations
low degree of specialization and formalization, flat structure, decentralized decision making, uses virtual due to information technology
mechanistic organizations
high degree of specialization and formalization, tall hierarchy, centralized decision making
simple structure
small firms with low complexity, founders make all important strategic decisions, low degree of formalization and specialization, a basic organiational structure
functional structure
groups of employees with distinct functional areas, the areas of expertise corresponded to distinct stages in the company’s value chain activities, recommended with limited diversification
multidivisional structure
consists of several distinct SBUs, each SBU is independent and led by a CEO, Each CEO of SBU reports to the corporate office, m-form is a widely adopted organizational structure, as most large firms are diversifies to some extent
related diversification
co-opetition among SBUs, trasfer core competences across SBUs, centralized decision making
unrelated diversification
decentralized decision making, competing fo resources
shared value framework
reestablish the relationship between superior firm performance and societal progress, externalities, creates a larger pie
externalities
pollution, wasted energy, and costly accidents increase, internal costs in lost reputation if not directly on the bottom line
traditional view- friedman
shareholder capitalism: shareholder- the providers of the necessary risk capital and the legal owners of public companies=have the most legitimate claim on profits
shared value view: porter
corporate social responsibility: obligations extend beyond the economic responsibility and include legal, ethical, and philanthropic societal expectations
agency theory
a theory that views the firm as a nexus of legal contracts
board of directors
the centerpiece of corporate governance, composed of indiside and outside directors who are elected by the shareholders
other governance mechanisms
executive compensation, the market for corporate control, financial statement auditors, governments regualtors, and industry analysis
corporate governance
mechanisms to direct and control a firm, ensure the pursuit of strategic goal, address the principal-agent problem
when corporate governance fails
accounting scandal, global financial crisis
information asymetry
insider information, on he job consumption
agency theory
views a firm as a nexus of legal contracts: relationships among shareholder, managers, and hierarchies, front line employees have an advatnage over management, firms need to design work tasks
adverse selection
misrepresentation of a job: beyond his/her ability to do things
moral hazard
difficulty to ascertain whether the agent gives his/her best
The board of directors
centerpiece of corporate governance
BOD different shareholder goals
institutional investors, individual short term investors
inside directors
generally part of the company’s senior mangement team
outside directors
not employees of the firm
functions of the board of directors
selecting, evaluating, and compensating the CEO, overseeing CEO succession plan, providing guidance on executives & their compensation, reviewing, monitoring, and approving strategic initiatives, conducting a risk assessment and mitigation, ensuring a firm’s audited financial statements, ensuring a firm’s compliance with laws and regulations
michael porter: managers focus on three things here:
- expand the customer base to bring in nonconsumers 2. expand traditional internal firm value chains to include more nontraditional partners 3. focus on creating new regional clusters
four attractive charateristics of public firms:
- limited liability for investors 2. transferability of investor interest 3. legal personality 4. seperation of ownership and control
executive compensation
salary, bonus, and stock options (long term incentives)
ceo pay-two issues
- ceo pay compared to average employee pay 2. firm performance and ceo pay
