Frank T. Rothaermel -- Strategic Management 3e -- Chapter 8

corporate strategy

the decision that senior management makes and the goal-directed action it takes to gain and sustain competitive advantage in several industries and markets simultaneously

transaction cost economics

a theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to a competitive advantage

transaction costs

all internal and external costs associated with an economic exchange, weather within a firm or in markets

internal transaction costs

costs pertaining to organizing an economic exchange within a hierarchy also called administrative costs

principle agent problem

situation in which an agent performing activities on behalf of a principle pursues his or her own interests

information asymmetries

situations in which one party is more informed than another because the possession of private knowledge

short term contracting

firm sends out RFP to several companies, which initiates a competitive bidding for contracts to be awarded with short duration, generally less than one year

strategic alliance

voluntary arrangements between firms that involve knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage

licensing

A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property

franchising

a long-term contract in which a franchiser grants a franchisee the rights to use the franchiser's trademark and business processes to offer goods and services that carry the franchise's brand name, the franchisee in turn pays up front buy in lump sum and a percentage of revenues

equity alliance

a partnership in which at least one partner takes partial ownership in the other partner

credible commitment

a long term strategic decision that is both difficult and costly

joint venture

organizational form in which two or more partners create and jointly own a new organization

vertical integration

the firm's ownership of the production of needed inputs or the channels by which it distributes its outputs

industry value chain

depiction of the raw materials into finished goods and services along distinct vertical stages, each of which typically represents an industry in which a number of different firms are competing. Raw materials, components, manufacturing, marketing/sales, after sales support

backward vertical integration

changes in an industry value chain that involve moving ownership of activities upstream to the originating point of the value chain

forward vertical integration

changes in an industry value chain that involve moving ownership of activities closer to the end point of the value chain

specialized assets

Unique assets with high opportunity cost; they have significant more value in their intended use than in their next best use. Three types site specificity, physical asset specificity, human asset specificity

Site specificity

assets are required to be co-located

physical asset specificity

assets hos physical and engineering properties are designed to satisfy a particular customer

human asset specificity

investments made in human capital to acquire unique knowledge and skills

risks of vertical integration

increasing costs, reducing quality, reducing flexibility, increasing the potential for legal repercussions

taper integration

a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies and/or is forwardly integrated but also relies on outside market forms for distribution

strategic outsourcing

moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain

diversification

an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes

product diversification

corporate strategy in which a firm is active in several different product markets

geographic diversification

corporate strategy in which a firm is active in several different countries

product market diversification strategy

corporate strategy in which a firm is active in several different product markets and several different countries

related diversification strategy

corporate strategy in which a firm derives less than 70% of its revenue from a single business activity and obtains revenue from other lines of business that are linked to the primary business activity

unrelated diversification strategy

corporate strategy in which a firm derives less than 70% of its revenues from a singles business activity and there are few if any linkages between its businesses

conglomerate

a company that combines two or more strategic business units under one overarching corporation; follows an unrelated diversification strategy

core competence market matrix

a framework to guide corporate diversification strategy by analyzing possible combinations of existing/ new core competencies and existing/ new markets

diversification discount

situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units

diversification premium

situation in which the stock price of related-diversification firms is valued at more than the sum of their individual business units

Boston consulting group growth share matrix

a corporate planning tool in which the corporation is viewed as a portfolio of business. graphs businesses by market growth potential and relative market share to recommend an investment strategy. question marks, star, cash cow, dog