Strategic Management Exam Review

Flashcards to review key concepts and definitions from the lecture notes for the upcoming exam.

What are the three methods presented for evaluating a project or business in M&A?

DCF (Discounted Cash Flow), Valorisation par comparables, and the method of Multiples de marché.

What is the formula for calculating Free Cash Flow (FCF)?

EBIT * (1 - tax rate) + Depreciation - Capital Expenditure (CapEx) - Change in Net Working Capital (BFR).

How is the unlevered cost of capital (rA) calculated using the Capital Asset Pricing Model (CAPM)?

rA = rf + βA * (rm - rf), where rf is the risk-free rate, βA is the asset beta, and (rm - rf) is the market risk premium.

What is the formula for calculating the Terminal Value (TV) of FCF in perpetuity with growth?

TV FCF = FCFt * (1 + g) / (rA - g), where FCFt is the last pro forma FCF, g is the growth rate, and rA is the unlevered cost of capital.

How is the annual Interest Tax Shield (ITS) calculated?

Tax rate * annual interest expenses.

How is the Terminal Value (TV) of Interest Tax Shields (ITS) calculated when the level of debt is stable?

Tax rate * Debt amount.

According to the document, when is the WACC method valid for company valuation?

Only if the debt/capital ratio remains constant over time.

How is strategic flexibility defined in the context of uncertainty?

The ability of a company to choose among several different strategic options, which exist when companies have the ability, but not the obligation, to invest in a particular strategy.

What are the key differences between decision-making in a risky environment versus an uncertain environment?

In a risky environment, all possible outcomes and their probabilities are known, allowing for cash flow projections. In an uncertain environment, not all possible outcomes are known, and their probabilities cannot be estimated.

Identify the two dimensions of uncertainty identified by McGrath and MacMillan.

Technical uncertainty(if you know how to make product/service) and market uncertainty (if people will want the product/service once it is created)

Describe 'Core' real options and their value.

Simple improvements to existing products/services with low uncertainty; they have little real option value and are suitable for traditional NPV analysis.

Describe 'Platform Positioning' real options and their value.

Investments to discover the best technical/production method with moderate technical uncertainty; offer moderate real option value by allowing exploration of solutions.

Describe 'Platform Scouting' real options and their value.

Investments to understand market preferences with moderate market uncertainty; offer moderate real option value by adapting the commercial strategy.

Describe 'Positioning options' real options and their value.

Exist when the company faces a very high technical uncertainty. Offers high value

Describe 'Scouting options' real options and their value.

Exist when the company faces a a very high market uncertainty. Offers high value

List and describe three different types of real options

Defer, Grow, Contract, Shut Down and Restart, Abandon, Expand

List the 6 elements that influence the value of a FINANCIAL option

Value of Real option (C), Value of future revenues expected (S), Cost of Invesment (X), Time available to decide (T), Rate of interest (rf), Unpredictability of future revenues

List the 6 steps for quantitative valuation

1. Find the 'real' option 2. Translate option into financial language 3. Calculate the 'benchmark' 4. Prepare the numbers for calculating the option 5. Estimate the value of the option (the flexibility) 6. Compare the total value (with flexibility) to the value of reference

What does the concept of "path dependency" refer to in the context of real options and competitive advantage?

It refers to how a company's ability to use real options depends on decisions it has made previously, influencing its competitive advantage over time.

When there is high uncertainty, is it better to use vertical integration or alliance/contracts? Why?

It is better to use Alliances or contracts. They are more flexible, cheaper to change, and easy to terminate if needed.

What are the 5 myths about strategy?

Strategy is for the long term, disruptors change strategy all the time, competitive advantage doesn't exist anymore, no need for strategy just be agile, and there should be a dedicated 'digital' strategy

What are the 3 principles when considering the future of a business strategy?

Inspire yourself from the future, organizationally inclusive, adopt a portfolio approach

What are the four market considerations to consider when strategizing the future of a business?

Market of products, market of work, market of capital, and the cone of the future

What are 3 pillars for building/maintaining trust in a business ?

Authenticity, Logic, and Empathy

Regarding inter-firm cooperation, differentiate between M&A and Strategic Alliances Dimensions in terms of Synergies

M&A: Reciprocal (full fusion); Strategic Alliances: Modular or progressive

Regarding inter-firm cooperation, differentiate between M&A and Strategic Alliances Dimensions in terms of Control

M&A: Strong; Strategic Alliances: Weak

Regarding inter-firm cooperation, differentiate between M&A and Strategic Alliances Dimensions in terms of Resources

M&A: Hard (tangible); Strategic Alliances: Soft (skills)

Regarding inter-firm cooperation, differentiate between M&A and Strategic Alliances Dimensions in terms of Risk & Uncertainty

M&A: Low; Strategic Alliances: High

Regarding inter-firm cooperation, differentiate between M&A and Strategic Alliances Dimensions in terms of Regulation

M&A: Few barriers; Strategic Alliances: Useful when a M&A is blocked

Name an example of a company merger and a company alliance?

Merger: Facebook and Instagram; Alliance: Spotify and Uber

what are three types of strategic Alliances?

Alliances contractuelles/ sans prise de participation, Prise de Participation, and Joint Venture

Under what circumstances does strategic alliances have a strategic sense?

Enter on markets with important barriers, establish symbiotic relationships, acquire knowledge, benefit from the advantages of externalization, benefit from risks

What are the 6 steps for creating an alliance?

1.Evaluation Strategique 2. Planification du partenariat, 3. Engagement avec le partenaire, 4. Execution du partenariat, 5. Gouvernance et evaluation de la performance, et 6. Considerations de Termination/ Strategie de sortie

List the reasons for failure in the failure of Alliances, JV, and Partnerships?

inability to match resources, capacities, culture, decision making process, inability to create relationships of trust, necessity to manage rivalry, difference in the methods of environmental change management, and less effective when the assets of partnerships overlap