Lecture 3 Flashcards
What happens when the environment changes?
When the environment changes businesses need new capabilities to reach new objectives (AI for example).
Example: BMW sets a new goal that 50 % of their sold cars will be electric by 2030.
What happens is that investors and analysts will start calculating the worth of bmw. So communicating this is very critical since it affects the value of the business.
Lower value of the stocks means lower value of the brand (number of stocks*price of stocks).
External factors are important here, law and regulations, infrastructure, carbon emissions.
How we are going to reach these objectives becomes the strategy. This requires them to review their resources and capabilities.
What is the primary source of superior profitability?
It has become increasingly apparent that capabilities, rather than industry attractiveness, are the primary source of superior profitability
What is the RBV?
Resource based view. Recognizes that each company possesses a unique collection of resources and capabilities, key to its competitive advantage and profitability
How has Apple based their strategy on capabilities?
They have combined hardware, software, ergonomics, and aesthetics to create products with superior functionality, design, and ease of use has allowed it to expand beyond desktop and notebook computers into MP3 players (iPod), smartphones (iPhone), tablet computers (iPad), and watches. To outlive the life-cycles of their initial products.
What is The Framework for Analyzing Resources and Capabilities?
- Identify the firm’s resources and capabilities
- Appraise the firm’s resources and capabilities in terms of: (a) strategic importance (b) relative strength.
Potential for sustainable competitive advantage. - Develop strategy implications:
(a) How can strengths be exploited most effectively?
(b) In relation to weaknesses:–Can they be offset by investment?–Can they be outsourced?–In which segments do they least
What is corporate strategy and its scope?
corporate strategy is concerned with the scope of the firm and the dimensions of scope are:
vertical (don’t outsource)
product
geographical
What does each stage of the vertical chain represent?
Each stage of the vertical value chain represents a distinct industry.
They depict the transformation of raw materials into finished goods and services along distinct vertical stages. Each stage of the vertical value chain typically represents a distinct industry in which a number of different firms are competing.
Why vertically integrate?
you vertically integrate to take control of your supply chain to keep the companies reputation
What is determining which activities should be undertaken within a firm? And which through market contracts (outsourcing or buying)?
Transactions using the market mechanism are not costless; those costs include the costs of: searching for a suitable supplier, monitoring the relationship, negotiation, drawing up contracts, and monitoring and enforcing the terms of contracts (including the costs of litigation in case of disputes).
Conversely, if an activity is internalized within a firm, then the firm incurs Management & Administrative Costs. If the Transaction Costs of organizing an activity through the market are higher than the Administrative Costs of organizing it within a firm, we can expect that activity to be organized within a firm.
What are the benefits of vertical integration?
Technical economies from the physical integration of processes e.g. iron ore and steel production
Avoids transactions costs of market contracts in situations where there are:
- Transaction-specific investments
-High levels of opportunism and/or uncertainty
-Taxes and regulations on market transactions
Superior coordination and control over the value-chain:
- Greater control over product quality - Greater potential for trial and innovation
What are some disadvantages of vertically integrating?
A major advantage of these IT specialists is the learning and knowledge they gain from working with multiple clients
High administrative costs
For diversification to create shareholder value, it must meet what three tests?
- The Attractiveness Test: Diversification must be directed towards attractive industries (or those with the potential to help generate profits).
- The Cost of Entry Test: The cost of entry must not capitalize all future profits (e.g., HP acquisitions of EDS & Autonomy).
- The Better-Off Test: Either the new unit must gain a competitive advantage from its link with the company, or vice-versa (i.e., some form of “synergy” must be present).
How has Apple diversified compared to LVMH?
Apple has diversified in a related matter (ecosystem of product)
LVMH has diversified in an unrelated matter (products don’t necessarily have synergy)
Common denominator of the products of LVMH is that all products are “unnecessary”.
What will lead to competitive advantage when left with a gap?
Apple (music) is left with a gap compared to competitors and the market (spotify). Determining a corporate strategy to respond to a strategic challenge (strategic resource gap), and closing this gap will lead to competitive advantage.
Build: Internal organic growth through development.
Borrow: External growth through a contract/strategic alliance.
Buy. External growth through acquiring new resources, capabilities , and comptencies
The resources that are valuable, rare and difficult to imitate are embedded deep within a firm (resource bundle).
Facebook had no mobile capability to catch up to instagram and whatsapp. Started messenger to compete. Either they can buy these capabilities or build them theirself, inhouse. Problem with this is lack of knowledge
What are M&A’s and how are they used?
Mergers, acquisitions, and alliances (important instruments/tools of corporate strategy). Are not strategies in themselves
As mergers and acquisitions (M&As) are the most costly, complex, and difficult to reverse strategic options, the firm should always first consider borrowing the necessary resources through strategic alliances before exploring M&As.
