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Strategic Management > strat_-_april_15_20240417215839 > Flashcards

strat_-_april_15_20240417215839 Flashcards

1
Q

What is strategy?

A

path needed to get from where we are today to where we want to be.

Involves long-term thinking and most of the time there are multiple strategies that take place at the same time.

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2
Q

Why is strategy important?

A

it defines the organization and gives a focus of effort within the organization. Also provides consistency for efficiency and focus. It allows the company to position/set a direction within the environment

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3
Q

What are the 4 questions/processes to create a strategy?

A
  1. Analyse current context (where we want to go)
  2. Evaluate the firm’s capabilities/competences (How to compete)
  3. Formulate a strategy and implement (How do we get there?/how to execute)
  4. Control, monitor and modify (are we there yet? is there something better?)
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4
Q

What is a vision?

A

enduring word picture of what the firm wants to be and expects to achieve in the future. Provides the core values of the firm.

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5
Q

What makes a good vision?

A
  • Challenges its people
  • reflects firm’s values and aspirations
  • development includes all stakeholders
  • Recognizes firm’s internal, external and competitive environment
  • Supported by upper management actions/decisions
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6
Q

What is a mission statement?

A

Concrete, near-term focus on current product markets and customers than a vision. What must be done to achieve your vision

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7
Q

What makes a good mission statement?

A
  • Specifies the present businesses in which the firm intends to compete and who it will serve
  • Inspiring and relevant to all stakeholders
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8
Q

Are mission/vision statement consistent throughout organizations?

A

No, sometimes they are flipped. important thing is to have a long-term reason to exist and short-term goals. Sometimes they are combined

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9
Q

What is the difference between a product advantage and competitive advantage?

A

Product advantages are difficult to sustain, to build competitve advantage, companies must think about their entire value system.

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10
Q

What are the two (3?) models related to competitive strategy decisions?

A
  1. Industrial organization model (internal)
  2. Resource-based model (external)

+ institution-based model sometimes

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11
Q

What is the “formula” for I/o and resource based model?

A

𝒀 = 𝜷𝟏∗𝑿𝟏 + 𝜷𝟐∗𝑿𝟐 + 𝜷𝟑∗𝑿𝟑 + 𝜷𝟒∗𝑿𝟒 + 𝜸𝑶𝒕𝒉𝒆𝒓 𝑽𝒂𝒓𝒔

x1: nb competitors

x2: scope of network

x3: whatever you get the point

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12
Q

What is an industry?

A

Group of firms producing products that are close substitutes for each other

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13
Q

What are Michael Porter’s five forces?

A
  1. Bargaining power of suppliers
  2. Bargaining power of buyers
  3. Threat of new entrants
  4. Rivalry among firms
  5. Threat of substitutes
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14
Q

What is rivalry among firms

A

Firm is challenged by a competitors actions or recognizes an opportunity to improve market position

Intensity depends on:
- Number of competitors
- industry growth
- fixed costs
- lack of differentiation

Rivalry is based on:
- Price
- After sale service
- Innovation

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15
Q

What is bargaining power of buyers?

A

Buyers ability to exert control over price

Buyers are powerful when:
- Few large buyers dominate industry
- Available substitutes
- Buyer is informed
- Products are standardized
- High volume customer
- Sensitive to price
- Low switching costs
- Supplier brand identity is important

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16
Q

What is bargaining power of suppliers?

A

Suppliers ability to exert control over price

Suppliers powerful when:
- Few large suppliers dominate
- Few substitutes
- Products are important to buyers (e.g. drugs)
- High switching cost
- Buyer is not significant customer

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17
Q

What are the barriers to entry? (threat of new entrants)

A
  • Economies of scale
  • Product differentiation
  • Capital requirements
  • Access to distribution channels
  • Cost disadvantages (locations, processes, government subsidies)
  • Government policy (government permission/licensing)
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18
Q

What is threat of substitutes?

A

Products/Services from outside a given industry that perform a similar or same function as the product which the industry produces

Threat when:
- Low switching cost
- substitute price is low
- Same or better performance

Reduce substitution risk:
- Differentiate through quality, after sale service, location

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19
Q

What are the three forces that have been added to Porter’s competitive forces?

A
  1. Complementary organizations: Businesses that provide G/S that complement your activities
  2. Social forces: legal, regulatory, social trends that are affecting business
  3. New strategies: New approaches to creating and selling G/S that your traditional competitors and emerging competitors are introducing
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20
Q

What are resources?

A

Tangible and intangible assets a firm uses to implement its strategies.
(assets, people, brand name, etc)

  • dont yield a competitive advantage alone
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21
Q

What are capabilities?

A

Resources firms use to organize and exploit other resources

  • created by combining tangible/intangible resources.
  • Used to complete tasks
  • ## Foundation for building core competencies/competitive advantages
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22
Q

Why is internal analysis important?

A

Cant evaluate the attractiveness of an industry without analyzing the resources a firm brings to that industry

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23
Q

What are the assumptions of resource-based theory?

A

Firms have:
- different resources
- unique capabilities depending on how they use resources
- resources/capabilities are not very mobile among firms
- resources/capabilites are the bases of competitive advantage and performance

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24
Q

What are the four categories of tangible resources?

A

Financial: ability to borrow and generate funds

Organizational: reporting structures

Physical: PPE, distribution, inventory

Technological: avaiable technology, copyrights, patents, trademarks (ACCOUNTING DISAGREES WITH THIS BS)

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25
Q

What are the three categories of intangile resources?

A

Human resources: knowledge, trust, skills, collaboration

Innovation: ideas, scientific capabilities, innovation capacity

Reputational resources: brand name, perception of quality, reputation with suppliers and customers

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26
Q

What is the difference of tangible and intangible resources in terms of being able to leverage them?

A

Tangible: hard to leverage, difficult to derive additional business or value from tangible resources

Intangible: Can be leveraged. Less visible, harder for competitors to understand, purchase, substitute, etc. More relied on for the foundation of a firm’s capabilities

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27
Q

What are core competencies?

A

Capabilities that serve as a source of competitive advantage for a firm over its rivals.

  • Emerge through time by accumulating and learning how to deploy resources and capabilities.
  • How the firms adds unique value
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28
Q

What is the value chain?

A

Shows how a product moves from raw material stage to final customer

Template that a firm uses to analyze costs and identify means that can be used to facilitate implementation of a strategy.

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29
Q

What are support activities?

A

activities the firm completes in order to support the work being done to produce, sell, distribute and service the products the firm is producing.

Can develop a capability/competency in any of the value chain activities

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30
Q

What is necessary in order for a value chain activity to be a competitive advantage?

A

The resource or capability must allow the firm to perform an activity in a better way than its competition or create value that the competitors cannot complete

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31
Q

What is outsourcing?

A

When firm cannot create value in a value chain activity or support activity, they use outsourcing.

It is the purchase of a value-creating activity or a support activity from an exeternal supplier

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32
Q

When should firms outsource and how does it create value?

A

Outsource when: they cannot create value or are at a substantial disadvantage compared to competitors.

Creates value by: increasing flexibility, mitigating risks, reduce CAPEX

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33
Q

What is the strategic rational of outsourcing?

A
  1. Helps business ofucs on broader business issues (Access world class abilities and higher efficiency)
  2. Free resources for other purposes
  3. Accelerate re-engineering benefits (use others who have already re-engineered to take over processes)
  4. Share risk (reduce CAPEX, more flexible, easier to adapt)
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34
Q

SWOT?

A

If you dont already know this, you should drop out of desautels

External: Opportunities/threats

Internal: Strength/weakness

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35
Q

What is industry analysis?

A

– Understanding key competitive forces that shape competition
in an industry
– Identify key success factors
– Predict future industrial profitability
– Find strategy

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36
Q

What is corporate governance?

A

Mechanisms used to manage relationships among stakeholders and determine and control the strategic direction and performance of organizations.

  • eastablish harmony between firm owners and top-level managers
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37
Q

What is an agency relationship?

A

When one party delegates decision-making responsibility to a second party for compensation.

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38
Q

What problems can arise due to agency relationships?

A
  1. Principal and agent might have different interests/goals (e.g. owner and manager)
  2. Agent makes decisions that result in pursuing goals that conflict with those of the principal
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39
Q

What is managerial opportunism?

A

Seeking of self-interest with deceit. It prevents maximization of shareholder wealth

Arrive due to divergent interests of agents and principals

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40
Q

What is a shareholder letter?

A

Provides a broad overview of a firm’s operations throughout the year to shareholders. Normally one per year

Financial results, stock price, market position, plans

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41
Q

What are agency costs?

A

Sum of incentive costs, monitoring costs, enforcement costs, financial losses incurred by principals because of governance mechanisms.

Larger in diversified firms

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42
Q

What are the four mechanisms to prevent problems associated with separation of ownership and control?

A
  1. Ownership concentration: Amount of stock owned
  2. Board of directors: individuals responsible for representing the firm’s owners by monitoring top-level managers’ strategic decisions
  3. Executive compensation: Salary, bonuses, long-term incentives to align manager with shareholders’ interest
  4. Market for corporate control: Purchase of firm that is underperforming in order to improve strategic competitiveness
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43
Q

What is ownership concentration?

A

diffuse ownership (large nb owners) produces weak monitoring and control of managerial decisions

High degrees of ownership concentration increases the probability that managers’ decisions will be designed to maximize shareholder value.

Institutional owners can significantly influence strategies as they can force managers/BoD to make decisions that are in the best interest of shareholders’

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44
Q

What is Board of directors

A

Elected individuals who are responsible for acting in the owners’ best interest by formally monitoring and controlling the firm’s top-level managersh

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45
Q

What are the 3 classifications of members of the board of directors

A

Insiders: CEO/top lvl managers

Related outsiders: Individuals univolved in day-to-day operations but who have relationship (family memebers, banks, legal, ex CEO)

Independent outsiders: Completely independent of the firm’s day-to-day operations and other relationships

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46
Q

What is executive compensation

A

Governance mechanism that seeks to align interest of amangers and owners through salaries, bonus, long-term inventives

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47
Q

What is the relationship between governance mechanisms and ethical behavior?

A

Corporate governance mechanisms used by ethically responsible leaders and companies increase the likelyhood the firm will be able to at least minimally satisfy all stakeholders’ intereest

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48
Q

What is Milton Friedman’s profit maximization view?

A
  • Argues against social responsibility, primary goal should be to optimize profits
  • Only social responsibility of business is to use its resources to maximize profit
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49
Q

What is Stakeholder Theory?

A
  • Business has obligation to create value for range of stakeholders. not just shareholders.
  • Creates trade-offs in its returns to investors but can lead to a more sustainable business with fewer risks
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50
Q

What are the four parts of CSR pyramid?

A
  1. Economic responsibility: profitable enough to reward creditors and shareholders
  2. Legal responsibility: act legally
  3. Ethical responsibility: Follow ethical principles held by society
  4. Discretionary responsibilities: Voluntary obligations
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51
Q

How can CSR be measured

A
  1. Sustainability reporting (sustainability reports or ESG metrics)
  2. CSD ratings and indexes (Morgan stanley’s MSCI, WRDS, etc)
  3. Impact assessments: S&P global trust carbon emission analysis
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52
Q

What are capital market stakeholders?

A

Shareholders and leders expect a firm to preserve and enhance their wealth. Risk-Return relationship

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53
Q

What are product market stakeholders?

A

Customers, suppliers, host communities, union

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54
Q

Who are organizational stakeholders?

A

Employees

Leaders

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55
Q

How do you manage stakeholders?

A

Identify key stakeholders and influence them effectively using communication

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56
Q

What is a business-level strategy?

A

Coordinating commitments and actions to build a competitive advantage

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57
Q

What is purpose of business-level strategy?

A

Something that every firm must have to create a difference between them and their competitors

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58
Q

What is a business model?

A

Describes how the firm creates, delivers and captures value. Framework for how they will use processes. Path to gain competitive advantage

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59
Q

What is a franchise model?

A

A firm licenses its trademark and the processes it follows to
create and deliver a product to franchisees.

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60
Q

What is freemium model?

A

The firm provides a basic product to customers for free and
earns revenues and profits by selling a premium version of the
service.

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61
Q

What is advertising model?

A

For a fee, a firm provides advertisers with high-quality access to
its target customers

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62
Q

What is subscription model?

A

A firm offers a product to customers on a regular basis such as
once-per-month, once-per-year, or upon demand.

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63
Q

What is peer-to-peer model?

A

A business matches those wanting a particular service with
those providing that service.

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64
Q

What are the two dimensions of a potential competitive advantage?

A
  1. Basis for customer value:
    - achieve lower cost than rivals
    - Possess ability to differentiate or perform different/higher value activities
  2. Competitive scope:
    - Broad scope: firm competes in many segments
    - Narrow scope: Selects a segment or group of segments and tailors their offering to them
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65
Q

What changes the effectiveness of business-level strategies?

A

SWOT of the environment and resources

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66
Q

What is cost leadership strategy?

A

Provide P/S at lowest cost relative to competitors.

Standardized G/S, sometimes a little differentiation and industries that process innovation is possible.

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67
Q

What are the risks of cost leadership?

A

Loss of competitive advantage due to newer competition

Failure to detect changes in needs

Imitating cost leader’s competitive advantage

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68
Q

What is the differentiation strategy

A

Integrated set of actions to produce products (at an acceptable cost) that customers perceive as being different in ways that are important to them.

Non-standardized products, ppl value different features instead of only low cost

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69
Q

What are the risks of differentiation?

A

differentiated products are no longer worth a premium

Unable to create enough differentiation for which ppl will pay additional price

Counterfeiting

competitiors creating similar features but at a lower cost

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70
Q

How do you implement cost leadership strategy?

A

Process engineering, centralized staff, formalized procedures, very mechanical.

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71
Q

How do you implement differentiation strategy?

A

Marketing, R&D, decentralized functions, less formalized to foster change, less structured job roles

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72
Q

What is a focused strategy?

A

Serve needs of a specific segment. Can be focused cost leadership or focused differentiation.

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73
Q

What drives focused strategies?

A

Small niches, lack of resources, direct resources to build competitive advantage in value chain, serve smaller segment more effectively

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74
Q

What are the risks of a focus strategy?

A

Competitors serve an evern more narrow market segment and serve them better

The industry decides it needs to focus more on this segment

Reduction in differences between needs of narrow segment and industry wide market

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75
Q

What is an integrated Cost leadership / differentiation strategy?

A

Low cost and some product differentiation. By having two sources of competitive advantage, it is possible to increase primary value chain activites in which the firm becomes competent

Must be flexible

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76
Q

What are the three sources of flexibility in integrated strategy?

A
  1. Flexible manufacturing systems (FMS)
  2. Information networks
  3. Total quality management (TQM)
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77
Q

What is FMS

A

Computer controlled process used to produce variety of products in moderate, flexible quantities with limited manual intervention.

allows low cost versus product variety tradeoff that happens in manufacturing

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78
Q

What is information networks?

A

Helps the firm satisfy customer expectations in terms of product quality and delivery speed

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79
Q

What is TQM?

A

effective TQM allows the firm to develop flexibility needed to identify opportunities to simultaneously increase differentiated features and reduce costs

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80
Q

What are the risks of integrated strategy?

A

Involves compromises, wont become lowest cost nor most differentiated. Stuck in the middle, you compete at a disadvantage are are unable to earn more than average returns.

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81
Q

What is inbound logistics?

A

Value chain activity

Activities related to receiving, storing and distributing inputs to a product

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82
Q

What is operations?

A

Value Chain activity

Activities necessary to convert inputs from inbound logistics to a finished good

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83
Q

What is outbound logistics?

A

Value Chain activity

Activities involved in collecting, storing, and physically distributing the product to customers

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84
Q

What is marketing and sales?

A

Value Chain activity

Activities completed to provide means to purchase products and induce them to purchase them

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85
Q

What is after sale service?

A

Value Chain activity

Activities designed to enhance or maintain a products value

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86
Q

What is procurement?

A

Support activity

Activities related to purchasing inputs needed

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87
Q

What is technological development?

A

Support activity

Activities completed to improve a firm’s product or manufacturing processes

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88
Q

What is HR management?

A

Support activity

recruiting, hiring, development, compensation

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89
Q

What is firm infrastructure?

A

Support the work of the value chain. Legal, finance, government relations, general management, etc

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90
Q

What is a corporate level strategy?

A

The actions a firm must take in order to develop a competitve advantage by managing and selecting groups of businesses which compete in different product markets

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91
Q

What is the reason for having a corporate-level strategy?

A
  1. Grow revenues/profits
  2. diversification
  3. Expected to help earn above-average returns by creating value
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92
Q

What are the two things corporate level strategy cares about?

A
  1. What product markets and businesses and firm should compete in
  2. How headquarters should manage the businesses
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93
Q

What is a corporate-level strategy in practice?

A

All fimrs have one even if it is a single-line business, the decision to not operate in any other industries is still important.

CEOs focus on corporate strategy (high level decisions)

Bad corporate strategies (hedge funds, corporate raiders)

Less well understood

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94
Q

What are low levels of diversification for a corporate-level strategy?

A

Single business: 95%+ comes from single business

Dominant business: 70-95% of revenue comes from a single busines

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95
Q

What are moderate to high levels of diversification in a corporate-level strategy?

A

Related constrained: <70% from dominant business and all businesses share production, technological and distribution linkage

related linked: <70% from dominant business and limited links between business

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96
Q

What is very high levels of diversification

A

unrelated: <70% of revenues from dominant business and there are no common links

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97
Q

What is thought about when diversifying?

A
  1. Scope of industries and market the firm competes in
  2. How managers buy, create and sell different businesses to match skills and strengths with opportunities.
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98
Q

What is horizontal integration?

A

Expansion into multiple businesses that share inputs (tangible or intangible) (E.g. disney has animation, shops and theme parks all operating under DisneyCorp)

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99
Q

What is vertical integration?

A

Expansion into businesses that make or use the output of other units (can occur in two directions)

Pixal films <– DisneyCorp –> Disney Stores

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100
Q

What is upstream vs downstream integration?

A

Backward/upstream integration: Manufacturing firm supplies its own raw materials

Forward integration: Manufacturing firm moves into market/distribution function

101
Q

What is internal expansion?

A

Expand into multiple geographic markets to leverage investments

102
Q

What are sharing activities

A

Firms can create operational relatedness by sharing primary or support activities.

It can:
- Costly to implement/coordinate
- create unequal benefits for divisions
- lead to fewer managerial risk-taking behaviors

103
Q

What are corporate-level core competencies?

A

Set of resources and capabilities that link different businesses. Normally through managerial/technology knowledge, experience and expertise.

104
Q

How can the related linked diversification strategy create value?

A
  1. Because the expense of developing a core competency has already been incurred so there is no need to allocate resources to develop it in a second business
  2. Because intangible assets are difficult to understand/imitate, the unit receiving the corporate-level competence gains an immediate competitive advantage over rivals
105
Q

What are economies of scope?

A

Cost savings generating by sharing resources/capabilities or transferring one or more corporate-level competency that were developed in one business to another

Reason to use related diversification strategy

106
Q

How can firms foster market power?

A

Multipoint competition and vertical integration

107
Q

What is multipoint competition

A

When two+ diversified firms compete in the same product areas or geographical markets

108
Q

How is vertical integration related to market power (benefits)

A
  1. Save on operations
  2. Avoid sourcing/market costs
  3. improve quality
  4. protect technology from imitation by rivals
  5. Exploit underlying capabilities in the marketplace
109
Q

What is a downside of unrelated diversification corporate-level-strategy?

A

Cannot seek operational or corporate relatedness, therefore dont get the advantages which are harder to replicate.

Works best in emerging economies

110
Q

What are financial economies

A

Cost savings from improved allocation of financial resources based on investments inside or outside of firm.

111
Q

How can unrelated diversification strategy firms create value

A

Efficient internal capital market allocation and asset restructuring

112
Q

What are the incentives to diversify?

A
  1. Antitrust laws (prevent mergers that increased market power, more of concern since early 2000s)
  2. Used to be tax benefit by it has since been changed
  3. Defensive strategy and reduces uncertainty of future cash flows (if product line is threatened, financial downtown, mature industries, etc)
  4. Synergy
  5. Managerial motives

BUT Research shows low returns are related to greater levels of diversification

113
Q

What is synergy as an incentive to diversify?

A

Synergy: When value created by business working together exceeds the value that the same units create working independently

Creates interdependence –> risk averse or uninterested in pursuing new product lines

Whether the product lines are pursued or not, it will lead to diversification either way.
1. Operate in environment that is more certain: related-diversification into industries lacking potential
2. Constrain level of activity sharing may produce additional, but unrelated diversification where the firm lacks expertise

114
Q

What are managerial motives as an incentive to diversify?

A

Reason to diversify beyong value-creating or value-neutral levels are: desire for increased compensation or reducing managerial risk.

Research shows diversification is correlated to firm size (firm grows –> more compensation and social status)

115
Q

What is a downside of managerial motives?

A

overdiversification and reduction in ability to create value.

Managerial tendencies to overdiversify can be prevented with: governance mechanisms (BoD), monitoring by owners, executive compensation, market for corporate control.

Evidence suggests that many top-level executives do not seek to diversify the firm in a way that destroys value

116
Q

What are the components to be assesed when determining to what extent firms are competitors

A
  1. Market commonality
  2. Resource Similarity

They affect the drivers of competitive behavior (firm’s awareness, motivation, ability to attack/respond)

Direct competitors = high commonality and similarity

117
Q

What is market commonality?

A

Number of markets with which a firm and a competitor are jointly involved and the level of importance these individual markets are to competitors

118
Q

What is multimarket competition

A

When competing firms compete in many markets

119
Q

What is resource similarity?

A

how comparable the competitors’ tangible and intangible resources are to our own

Similar types and amounts: similar strengths and weaknesses and use similar strategies

Difficult to do if critical resources are intangible

120
Q

What is a payoff matrix

A

Used in game theory. Reoresents games involving simultaneous moves with no communication. Single-period simultaneous game, the dominant strategy is one that is optimal regardless of what the rival does.

Repeated games may influence current move due to threat of future retaliation.

121
Q

What is prisoners’ dilemma?

A

Example of two people:
Cooperate/cooperate (1,1)
Cooperate/Defect (3,0)
Defect/cooperate(0,3)
Defect/defect (2,2)

Chosen option is both defect and they are both worse off

Happens withprice wards, real estate, shipping, anywhere with high entry/exit barriers

122
Q

What is a first mover?

A

Firm that takes initial action to build/defend its competitive advantage or improve its market position

Tend to be: aggressive, willing to experiment, take higher level of risks

123
Q

What are the incentives to be a first mover?

A

Gain loyalty of customers, market share and proprietary technology (patents)

124
Q

What is necessary to be a first mover?

A

Invest a lot in R&D and rapidly and successfully product and market a stream of innovative products

125
Q

What is a second mover?

A

Firm that responds to the first mover’s action. Normally through imitation

126
Q

How does the second mover implement their strategy?

A
  • Study customers’ reactions to product innovations
  • find mistakes first movers made
  • take time to develop processes and technology that are more efficient and create additional value

Still need to respond quick enough to be successful second mover

127
Q

What are late movers

A

Firm that responds to a competitive action a significant amount of time after the first/second mover’s response.

128
Q

What are the characteristics of later movers?

A
  • achieve less than 1st/2nd movers
  • require more time to understand how to create value
  • typically only earn average returns
129
Q

What are the two types of competitive landscapes?

A
  1. slow-cycle markets
  2. Fast-Cycle Markets
130
Q

What is a slow-cycle market?

A
  • Comp advantages are shielded from imitation for a long period of time
  • imitation costly
  • competitive advantages are sustainable
  • firms concentrate on competitive action and responses to protect, maintain, and extend proprietary competitve advantage
131
Q

What are fast-cycle markets?

A
  • comp advantage arent shielded for imitation
  • imitation happens quickly and somewhat expensively
  • comp advantages are not sustainable
  • non-proprietary technology is diffused rapidly
132
Q

Why are M&A strategies becoming more popular?

A

Research:
- Shareholders of acquired firms earn above average returns from acquisition
- Shareholders of acquiring firms earn returns close to -
- acquiring firm stock price almost immediate falls

Hard to know the worth of a target firm, which increases likelyhood of paying a premium.

Value of target < premium = negative outcome

133
Q

What is a merger?

A

strategy where two firms agree to integrate their operations on a relatively coequal basis

134
Q

What is an acquisition

A

Strategy where one firm buys controlling (or 100%) interest in another firm to make them a subsidiary busness. (most common)

135
Q

What are takeovers?

A

Special type of acquisition where a firm does not solicit the acquiring firm’s bid

136
Q

Where do you gain infomration on M&A motives?

A

company filings, press releases, news, consulting firm reports, M&A conference calls, etc

137
Q

What problems are associated with using an acquisition strategy?

A
  1. Difficult to integrate firms
  2. Incorrectly evaluating value
  3. Debt loads prevent long-term investment
  4. Overestimating synergy
  5. Too much diversification
  6. Managers spend too much time/energy analyzing acquisition
  7. Develop a firm that is too large which needs bureacratic rather than strategic controls
138
Q

What is the integration process in M&A?

A
  • considered to be strongest determinant of whether the M/A will be successfull
  • difficult and challenging
  • generates uncertainty and resistance due to culture clash and organizational politics.
139
Q

What challenges are associated with the integration process?

A

need to:
- meld 2+ unique cultures
- Link financial and information controls
- Build effective working relationships (especially when management styles differ)
- determine leadership structure and those who will fill it for the integrated firm

140
Q

What is a strategic alliance?

A

Primary cooperative strategy where firms combine some of their resources and capabilities to create a mutual competitive advantage.

141
Q

What is a joint venture?

A

Major strategic alliance when two or more firms create a legally independent company to share some of their resources to create a competitive advantage.

  • partners own equal percentages and contribute equally to operations
  • formed to improve firm’s ability to compete
142
Q

How are joint ventures effective?

A
  • establish long-term relationships
  • transfer tacit knowledge (cant be codified, but it is critical to firms’ effort in developing a competitive advantage)
143
Q

What is an equity strategic alliance?

A

One company purchases equity in another business (partial acquisition) or each business purchases equity in eachother (cross-equity transaction)

They do this to ensure they have control over assets they commit to the alliance

144
Q

What is a nonequity strategic alliance?

A

Two or more firms develop a contractual relationship to share some resources to create a competitive advantage.

  • less formal
  • Fewer commitments from partners
  • doesnt foster intimate relationship
  • unsuitable for complex projects where success depends on the transfer of tacit knowledge
  • OUTSOURCING commonly occurs through non-equity strategic alliances
145
Q

What are the motives behind strategic alliances?

A
  • Accessing Complementary Assets
  • Responding to Competitors’ Actions
  • Reducing Uncertainty and Competition
146
Q

What is accessing complementary assets?

A

Leveraging partner strengths to enhance capabilities and access resources that are not available internaly to facilitate innovation and expansion

147
Q

What are the two dominant types of complementary strategic alliances?

A
  1. Vertical: firms share some resources from different stages of value chain
  2. Horizontal: firms share some of their resource sfrom the same stage(s) of the value chain
148
Q

What is responding to competitior’s actions?

A

Forming alliances to countermeasure competitors’ moves, maintaining or improving market position

149
Q

What is reducing uncertainty and competition?

A

Collaborating to minimize industry uncertainties and competitive pressures. Stabalize market presence and foster cooperation

150
Q

What is collusion?

A

Used to reduce competition, differs from strategic alliances because they are an illegal cooperative strategy.

151
Q

What are the two type sof collusion

A
  1. Explicit collusion: two+ firms negotiate directly about the amount to produce and for what price
  2. Tacit collusion: two+ firms indirectly coordinate production and pricing by observing each other’s competitive actions and responses
152
Q

What are the competitive risks of cooperative strategies?

A
  • inadequate contracts
  • Misrepresentation of competencies
  • opportunistic behavior (fail to commit resources and capabilities)
  • Must use risk management!
153
Q

What is an uncertainty-reducing strategy?

A

Used to hedge against risks created by uncertain competitive environments

154
Q

What are competition-reducing strategies?

A

Used to avoid excessive competition while the firm marshals its resources to improve its strategic competitiveness

(collusion)

155
Q

What is franchising?

A

Strategy where the franchisor uses a franchise as a contractural relationship to describe the sharing of its resources with its partners. BRAND NAME is often more important competitive advantage for franchisee

  • alternative to pursuing growth the M&A
  • attractive for fragmented industries (hotel/retailing) where no one has dominant market share
156
Q

What makes a successful franchising strategy?

A
  • partners work closely together
  • franchisor develops programs that transfer knowledge and skills to the franchisee
  • franchisee provides feedback regarding how their unit could become more effective and efficient
157
Q

What are the risks of a cooperative strategy?

A
  1. Firm acts in a way its partner things is opportunistic (surfaces when formal contracts fail to prevent it and alliance is based on false trustworthiness)
  2. Misrepresentation of resources brought to partnership (more common when based on intangibles)
  3. Failed to make the resources commited to the cooperative strategy available to its partners (common in international cooperative strategy, language/culture can cause misrepresentation or trust expectations)
  4. One firm makes investments that are specific to the alliance while the partner does not (firm making investmnet is at relative disadvantage in returns earned)
158
Q

What is differentiation in terms of organizing?

A

Creating multiple work units for particular tasks using different skills, tools and methods.

  • Likely high in complex and dynamic environment
159
Q

What is integration in an organization

A

The degree to which differentiated units share resources and capabilities, coordinate and are unified under a corporate parent

160
Q

What is organizational structure?

A
  • Reporting relationships, procedures, controls, authority, decision making
  • The work to be done and how to do it given the firm’s strategies
161
Q

What is the relationship between strategy and structure?

A
  • reciprocal relationship
  • Structure flows from selection of strategy
  • once structure is in place, it can influence current strategy
  • effect of strategy on structure > effect structure on strategy
162
Q

What should be thought about when selecting a structure that aligns with strategy?

A
  • Stability needed to use current competitive advantages
  • Flexibility needed to develop future advantages
163
Q

What is relationship between organizational growth and strategy?

A

organizational growth allows the firm to change its strategy to become even more successful

Existing structure could lack the sophistication to support this strategy, therefore new organizational structure is neededW

164
Q

What are the three basic structure types?

A
  1. Simple Structure
  2. functional Structure
  3. Multidivisional Structure (M-form)

Across time, firms move from simplest to multidivisional

No structure is inherently better, must choose the structure that best matches strategy

165
Q

What is the simple structure?

A
  • Owner/manage make all major decisions and monitor activities
  • staff serve as extension of the manager’s authority
  • Matched with focus strategy and business-level strategies. (single product lign in single geographic market)
  • Growth creates complexity and managerial and structural challenges
166
Q

What is the functional structure?

A
  • CEO
  • Line managers in dominant organizational areas (production, marketing, engineering, accounting, etc)
  • Benefits: Economies of scale and scope, maintained performance standards, specialized training, clear decision making and communication
167
Q

Who should use a functional structure?

A
  • Support use of business level strategies and some corporate level strategies (single or dominant business with low levels of diversification)
168
Q

What are the disadvantages of functional strucutre?

A
  • hard to integrate
  • lack of common vision
169
Q

What is multidivisional structure?

A
  • Strategic control: Operation divisions function and seperate businesses or profit centers
  • top corporate officers delegates responsibilities to division managers
170
Q

Who should have a multidivisional structure?

A

Highly diversified firms

171
Q

What are the benefits and disadvantages of a multidivisional structure?

A

Benefits:
1. corporate officers can more accurately monitor performance of each business (simplifies control)
2. Facilities comparisons between divisions (improves resource allocation
3. Makes managers in poorly performing divisions find ways to improve performance

Disadvantages:
1. Difficult to coordinate
2. Replication of resources
3. pressure to generalize, not specialize

172
Q

What is strategic leadership?

A

Ability to anticipate, envision, maintain flexibility and empower others to create strategic change when necessary

Multifunctional in nature:
- managing through others
- managing entire organization
- coping with rapid and intense changes associated with global economy

173
Q

What is strategic change?

A

Change resulting from selecting and implementing a firm’s strategies

174
Q

What makes an effective strategic leader?

A
  • Influence behaviors, throughts and feelings of those who the work with by example, word and ability to envision the future
  • Create and support the context or environment through which stakeholders can perform most efficiently
  • Implement strategies to make above-average returns
175
Q

What is the most critical skill of a strategic leader?

A

Attracting and managing human capital. Especially now where the intellectual capital that the firm possesses affects the strategic leader’s success.

176
Q

Who does strategic leadership rest with?

A

CEO

177
Q

What is a top management team?

A

Individuals responsible for making the firm use the strategic management process, especially to select and implement strategies.W

178
Q

who is part of the top management team?

A

Officers and BoD

179
Q

Why should a firm have a top management team instead of just a CEO

A

most problems require a team of executives rather than a single individual

they help CEO avoid overconfidence and make better decisions

180
Q

What is a heterogeneous top management team?

A
  • Team with different types of expertise and knowledge
  • different background, experience, education
181
Q

Why is having a heterogeneous top management team advantageous?

A
  • Decisions by heterogeneous top management team tend to have a positive relationship with innovation and strategic change
  • Different perspectives creates higher quality decisions and firm performance
  • Makes other team members think more creatively
  • Firms who could benefit from making strategic changes are more likely to make changes if they have a heterogeneous top management team
182
Q

What could be a disadvantage of a top management team?

A
  • If the team cannot manage itself effectively, it can stop effective decision-making processes
  • large and more heterogenous management teams make it more difficult to implement strategies
183
Q

What is the role of a top-level manager?

A
  • Make decisions regarding strategies and implement them
  • Use their own discretion
184
Q

What are the three factors affecting managerial discretion?

A
  1. External environment (industry, growth rates, number of competitors, legal constraints, differentiation amongst products)
  2. characteristics of the organization (size, age, culture, resources, interactions among employees)
  3. Characteristics of the manager (tolerance for ambiguity, commitment to firm and strategy, interpersonal skills, self confidence)
185
Q

What are the 4 criteria of a sustainable advantage?

A

valuable, rare, costly to imitate and organized

186
Q

What is the definition of a value chain?

A

Template a firm uses to analyze their costs and identify ways that can be used to facilitate implementation of a chosen strategy.

Segmented into value chain activites and support functions

187
Q

How do agency relationships work?

A
  1. Agents hire manager to make decisions
  2. Owners diversify by investing in multiple corporations
  3. owners expect agents (top level firm managers) to make decisions that will maximize firm value
188
Q

how does the strength of governance mechanisms influence managerial decisions?

A

Weak mechanisms: managerial interest prevails, happens when amangers have a lot of autonomy

Strong mechanisms: BOD controls managerial autonomy, strategies reflect shareholder interests

189
Q

Demand for better performance and accountability is creating changes to BoD such as

A
  1. Diversity changes
  2. Strengthening internal management and accounting control
  3. Formal process to evaluate board emembers
  4. Modifying compensation of BoD (eliminating stock options)
  5. Lead director role who has strong powers in regard to agenda and non-board activites
190
Q

Why do firms set out ethical values

A

BoD is an internal governance mechanism and holds top-level managers fully accountable for developing and supporting an organizational culture in which only ethical behaviors are permitted

191
Q

What are effects of businesses looking at more than just their profits?

A

Creates trade-offs but ultimately leads to a more sustainable business with fewer risks and more satisfied stakeholdersW

192
Q

What do critics think of stakeholder theory?

A

More complex than friedman doctrine because it wants optimization of several objectives that are hard to achieve in practice.

Takes more time to validate some stakeholders whose claims are less known than others

193
Q

What are the three stakeholders?

A
  1. Capital Market stakeholders: expect to preserve and enhance wealth
  2. Product market stakeholders: unions (want workign conditions and securite jobs), host communities (want lowest price possible), suppliers (want ppl who are willing to pay highest price possible)
  3. Organizational Stakeholders: Employees (want dynamic, rewarding work, develop skills)
    Leaders (use human capital to serve firm, understand competition)
194
Q

What does a business model do?

A
  1. Influences the implementations strategy especially when you have interdependent processes
  2. increases likelyhood of company success
195
Q

What is relationship between business level strategy and business model?

A

Business model: How firm will process, deliver and capture value

Business Level Strategy: Path firm will follow to develop competitive advantage

196
Q

What are the types of business models?

A
  1. Franchise model
  2. Freemium
  3. Peer-To-Peer
  4. Subscription
  5. Advertising model
197
Q

What are the five business-level strategies and what are they for?

A

They are all used to defend their strategic position against competitors

  1. Cost leadership
  2. Differentiation
  3. Focused cost leadership
  4. Focused differentiation
  5. Integrated cost leadership/differentiation
198
Q

What are the two strategy levels?

A
  1. Business level strategy (competitive) think business unit strategy:
    Drivers of industry profitability, how to create competitive advantage2
  2. Corporate level strategy (company wide): actions to gain competitive advantage by selecting and managing businesses in different product markets
199
Q

What is an international framework?

A

Expansion into multiple geographic markets to leverable investments (tangible and intangible)

200
Q

What are the benefits of related constrained and related linked?

A

Economies of scope and market power through multipoint competition and vertical integration

201
Q

What can the interdependence amongst firms which have synergy create?

A

Make the firms risk averse and uninterested in pursuing new product lines that are not proven (More certainty leads to diversification that lack potential)

OR

restrict activity sharing. (constraining level of sharing might produce additional but unrelated diversification where the firm lacks expertise.)

EITHER DECISION:
Leads to further diversification.

202
Q

What are drivers of competitive behavior?

A

market commonality and resource similarity

203
Q

If firms have the same resources in similar amounts what is the likely relationship?

A

They are direct competitors

204
Q

Reapeated game with the thread of retaliation had what influence on the current move?

A

Tit for tat strategy (reciprocity) proves most effective

205
Q

What are the types of major strategic alliances?

A
  1. Joint venture
  2. Equity Strategic Alliance
  3. Nonequity strategic alliance
206
Q

What are the four ways a firm can diversify?

A
  1. build (internal, organic growth): Profit option value, slow. uncertain
  2. Buy (acquire), fast but acquisition premium thats difficult to internalize
  3. Borrow (Joint venture, alliances), complementary resources, less control, loose know how advantage compared to partner
  4. Licensing, fast and easy, milk rather than grow position
207
Q

Uber - Limousine industry

A
  • Mostly cororate customers
  • Many companies, most were independent owners and no one had an extremely large share
  • Low entry barries except licensing requirements
208
Q

Uber - Taxi industry

A
  • Set rates by regulating authorities
  • medallions hard to obtain and extremely expensive
  • Anonymity of cap service meant poor feedback and therefore complaints about safety, cleanliness, racial profiling
  • Extremely fragmented
209
Q

Uber - Sharing economy

A
  • Zipcar, airbnb, uber, lyft
  • uber originally had on-demand blakc car services
  • In 2013, states begane recognizing a “transportation network company”
210
Q

What are ubers competitive advantages?

A
  1. Extensive resources with cash and ability to move quick
  2. Genre-defining product and vocal customers
  3. Improving government relations
  4. Little bottom-line impact of stakeholders
  5. As public acceptance grows, regulatory resistance should decrease
211
Q

What are uber’s challenges

A
  1. Regulatory resistance becoming more of a challenge
  2. Legal operations are costly
  3. stakeholder relationships damages
  4. difficult to pursue IPO
  5. Driver classification of employee would ruin profitability
212
Q

How could uber overcome resistance from state and local governments?

A
  • Continue lobbying, relationship- building
  • Proactively engage with regulators to work around issues
  • Embrace common-sense safety rules
213
Q

What are the risks that come with overcoming resistance from state and local governments?

A
  • Permanently damaged relationships will undermine success
  • Slowed growth with regulator coordination
  • Cost of compliance
214
Q

What are the benefits of the contractor model for Uber and for drivers?

A

Uber: low costs, limited liability and low HR requirements

Drivers: flexible work schedule, independence from training requirements, higher earnings possible through surge pricing

215
Q

What are the disadvantages of a contractor model for uber and drivers?

A

Uber

  • Less control over end product than “full-stack” approach
  • Morale problems and transient drivers
  • Legal costs from classification challenges

Drivers

  • No benefits, wage floors, or reimbursement
  • Poor job security
  • Costly commercial insurance requirements
216
Q

Uber’s Direction if it Stays the Course

A

Public support would overcome regulatory resistance and complaints would be deemed overblown. Since uber has already trnasformed the ride-for-hire industry, they cant change now but collaborative approaches could hurt growth and profits

217
Q

Uber’s Direction if they Change

A
  • uber asked for a war and is getting one
  • poor public image erodes support
  • NEw entrants who take uber’s business model
  • cost of collaboration is less than cost of being banned, partnership could make growth opportunities
218
Q

What is uber’s competitive landscape

A
  • Ride sharing, food delivery, and freight. Advantage over mono-platform companies like lift
  • Large untapped customers in global markets and only small share of adults using uber
  • want to expand customer base by bringing down prices
219
Q

Walmart What are strategic challenges since 2008?

A
  1. Same-store sales rising at record low pace. Senior managers are pressured to increase growth.
    - Focus on devery day low prices vs upscale market
  2. Behind amazon on e-commerce (walmart #2 but HUGE gap)
220
Q

What are walmart’s competitive advantages?

A
  1. Management’s competitve culture
  2. Logistics
  3. Store operations (Local monopolies and low rental costs)
  4. HR (anti-union)
  5. Merchandising and procurement (one-stop shop)
221
Q

What is a value stick?

A

value stick

  • willingness to pay
  • price
  • cost
  • willingness to supply
    where the position of each element moves up or down, depending on pricing decisions and market pressures
222
Q

how does walmart achieve low costs?

A
  1. Relative cost analysis:
    - Understand your cost structure
    - Identify cost drivers for each activity
    - Quantify the effect of cost drivers
    - Determine competitors’ relative position
  2. Isolate key sources of cost advantage
    - Tight control over them
    - Configure activities around them
223
Q

What drives walmart’s low cost strategy?

A
  • Decisions throughout all corners of the enterprise.
  • All of their processes and culture are aligned towards the goal of identifying cost drivers and wringing every penny of savings out of them
224
Q

Should Wal-Mart go upscale?: Wal-Mart’s next strategy for growth (YES)

A
  • use their logistical expertise to quickly assess if this strategy leads to growth.
  • an upscale strategy may be worth pursuing since international expansion has been an uncertain source of growth
  • alternative for bringing the company into this new niche
  • Urban areas offer growth to tap new customer segments
225
Q

Should Wal-Mart go upscale?: Wal-Mart’s next strategy for growth (NO)

A
  • risk of alienating current customers and confusing them
  • different type of customer service and marketing expense
  • Inefficient to veer from low cost strategy
  • Better alternatives such as other niches (pharmacies or automotive) or improving customer experience to make them come back more often
226
Q

How sustainable is Wal-Mart’s competitive advantage?: The future and who will dominate it

A

Stores struggle to keep up with demand
Retail closures are accelerating the rise of Amazon

227
Q

What questions are part of corporate level strategy?

A
  • What is the mix of industries we should be in?
  • How do we add value in each unit?
  • Horizontal, Vertical, International, Unrelated ?
  • Operational/Corporate relatedness ?
228
Q

What are strategic motives

A
  • Revitalizing sales growth, performance improvement
  • The pursuit of synergy
  • Reduction of risk for the firm (as a defensive strategy)
  • The desire for increased compensation
229
Q

How can a firm create a corporate advantage?

A
  • Diversification as corporate strategy
  • Decentralized structure
230
Q

Why did Google diversify by acquiring YouTube—an online video site—or Android—a mobile operating system—when they had no valuable expertise in these areas?

A
  • No evidence of relatedness as there is no evidence of tangible or intangible resources that could contribute to Alphabet’s competitive advantage
  • Google has access to technological talents.
  • Youtube creates touchpoint to attract people to google’s search engine
  • Diversification that is primarily demand related
  • Need to create and sustain demand for core business to justify investments in compelmentary areas
231
Q

What is the logic of investing into Moonshots ranging from thermostats, to biotech, robotics, etc.? Do the investments in the Moonshots fit into the diversification logic that motivated YouTube and Android, or do they reflect a completely different logic?

A

Prior success and/or resources should allow them to successfully diversify across a broad variety of sectors, regardless of their relationship with core Google; the company can provide unique tangible or intangible resources to its investments, regardless of their activity

232
Q

Benefits of alphabet reorganization for managers

A

1, Control, independence, speed: Decentralizing decision-making allows moonshots to remain focused and limit need to lobby for shared internal resources
2. Economies of scope: Opportunity to create tighter relationships between google and complementary and related assets such as youtube and android
3. Flexible resource allocation: diversifying actually increased relatedness within google

233
Q

What are the benefits of the reorganization for investors

A
  1. insulates profits of core business form less profitable and risky investments
  2. enhances transparency and allows shareholders to see how internal resources are allocated
  3. Makes it easier to trade assets and sell them if needed
234
Q

What are the drawbacks of the Alphabet reorganization (by decentralization)?

A
  • Loss of control from corporate center which leads to unproductive uses of internal resources
  • Reduce further the possibility of sharing resources
  • Doubtful that financial accountability can be effective in keeping Moonshots in line given the uncertain and risky nature of investments
235
Q

use of demand-side externalities?

A

use of demand-side externalities?

a powerful force for diversification.

  • In that sense, the emergence of business opportunities with strong demand-externalities (such as Alphabet, Amazon, Facebook) can help explain the resurgence of the conglomerate model in the current digital economic landscape.
236
Q

caution with demand-side externalities

A
  • Does not imply limitless diversification. Moonshots are hard to justify with this logic
  • Moonshots are problematic because its hard to know which tangible and intangible assets are being shared.
  • COntracts might have allowed profitability exchange instead of ownership
237
Q

WHat is better off test?

A

The best vertical combination is the one where the two partners in the value chain maximize their joint revenue

Which combination brings the best set of assets together?

238
Q

“ownership” test

A
  • Verticle integration through ownership is only appropriate when contracts along the value chain are difficult or impossible to write
  • Problems and costs of the market governance transactions
239
Q

vertical integration decision

A

is a better strategic decision for repetitive operations
- better off test
- ownership test

240
Q

Should Disney buy Pixar? As a board member of Disney, would you approve a bid of more than $7 billion for Pixar?

A

Reasons to Approve:

Revive Core Business: Pixar’s success in animation revitalizes Disney’s failing department and provides access to cutting-edge CGI technology (Pixar is a leader).

Financial Strength: Pixar is financially sound (high assets, low debt) and a strong contributor (60% of Disney’s movie profits).

Strategic Advantage: Acquisition secures Pixar’s talent and prevents them from working for competitors.

Pixar’s Leverage: Disney holds the upper hand in negotiations due to Pixar’s limited options.

Reasons to Consider:

Pixar’s Future Performance: Past success doesn’t guarantee future hits.

Execution Risk: Disney’s management style might stifle Pixar’s creativity.

Financial Cost: The purchase price is high (over $7 billion) and may dilute existing shareholders.

241
Q

As a shareholder of Pixar what do you think of the merge with Disney?

A

Pros of Merging with Disney:

Financials: High offer price, maximizes shareholder return.

Distribution & Merchandising: Disney’s expertise boosts reach and profits.

Strong Existing Relationship: Easier transition, familiarity with each other.

Cons of Merging with Disney:

Loss of Creative Control: Disney culture might stifle Pixar’s innovation.

Employee Retention: Key talent might leave after the merger.

242
Q

As a board member of Pixar would you accept a bid of more than $7 billion from Disney?What could be an alternative

A

Pros of Merging with Disney:

Financials: Excellent offer, capitalizes on current success.

Cons of Merging with Disney:

Loss of Competitive Advantage: Unique company culture could be compromised.

Alternative Options: Renegotiate distribution deal or find better partners.

243
Q

whatare disney’s alternatives to pixar

A

disney alternatives

Fix Disney’s own animation unit

– All internal attempts have been a failure

– Fired a large number of animators when things started to go sour

– The knowledge accumulated at Pixar is hard to replicate

– Nobody like Katzenberg is available now

– Doesn’t have the technology

Hire talent away from Pixar

– Pragmatically hard to do; Pixar employees extraordinary loyal to the company

– Team-based capability not individual capability

– They will either demand more money or leave for another firm (appropriability of the resource)

New long-term contract

244
Q

Pixar alternatives

A

Build its own movie distribution networks, merchandising sales etc.

– ex. Universal studios got into amusement parks.

– Easy or difficult to imitate the Disney’s competitive advantage?

The capabilities required to distribute and, more importantly, tomerchandise are very different from Pixar’s capabilities (creativity and technological capabilities).

It would require massive investments (or alliances with existing players).

Sign an exclusive distribution deal with a different movie company

– Disney is the best partner who will add the most value

– Very few alternative partners offer all the services in one.

– Pixar already has built relational assets with Disney.

New long-term contract

245
Q

Ownership Test: Why should Disney own Pixar? Why can’t it just renegotiate the contract?

A

Contract Issues: Long-term contracts for complex revenue streams (DVDs, sequels, parks) are difficult to negotiate and enforce, leading to potential conflict.

Creative Control: Pixar feared Disney wouldn’t prioritize Pixar films or exploit their franchises for cheap profit.

Dual Role Conflict: Disney being both competitor and distributor for Pixar films created a potential for unequal promotion.

246
Q

Ownership Test: If a contract is hard to write, how would Disney manage Pixar if it actually bought it?

A

Central Issue: If acquiring Pixar (difficult contract writing), how should Disney manage it?

Options: Separation vs. Integration

Separation:

Pros: Retains Pixar’s successful culture (compensation, autonomy).

Cons: Misses cost-saving opportunities (synergies).

Integration:

Challenges:Leadership conflicts (Disney vs. Pixar managers).Morale impact on Disney animators.Branding: Keep “Pixar” name or not?

247
Q

What has changed over time that Disney needs to buy Pixar now, when it did not before?

A

What has changed over time that Disney needs to buy Pixar now, when it did not before?

Disney Animation Struggles: Traditional animation needed revival, and Pixar’s success proved a new approach was key.

Pixar’s Power: Pixar’s strength grew, making a simple contract less favorable for Disney.

Shifting Dynamics: Negotiations became harder as Pixar gained leverage.

Future Uncertainty: New technologies made long-term contracts risky.

Reason for Acquisition: To secure a critical resource (Pixar) and its expertise for Disney’s animation revival.

248
Q

How are contrats for physical goods and services different

A

Ease of contracting:

If the transaction concerns a physical product t he contract can specify all the relevant issues e.g., quality control. In contrast, if the transaction concerns a service, like movies, it is really hard.

249
Q

The choice of vertical scope - build (or borrow) vs. buy - is a crucial strategic decision

A
  • crucial strategic decision that is often made poorly, particularly by managers who believe that they should always integrate vertically in order to “capture the margin” upstream or downstream

– Many failed attempts to vertically integrate content and distribution (e.g., UniversalVivendi, DisneyABC, etc.)

– Both market contracting and the ownership have weaknesses –> why we see firms, but not one huge firm running the entire economy.

Strategic Management (1 decks)

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