Strategic Management Exam 2 Study Guide Flashcards

Vocabulary-style flashcards covering key strategic management concepts, competitive dynamics, diversification, and acquisition strategies from the exam study guide.

Main Objective of Business-Level Strategy

To gain a competitive advantage by exploiting core competencies in specific product markets.

Central Purpose of a Digital Strategy

To leverage digital technologies to better serve customers, improve operations, and create value.

The 'How' Component (Who, What, How Framework)

Represents the core competencies or resources used to satisfy the customer needs identified in the strategy.

Freemium Business Model

Offers a no-cost basic version of a product while generating revenue from upgraded premium features.

Cost Leadership and Supplier Power

Helps a company manage suppliers by providing the ability to absorb cost increases and maintain higher margins than competitors.

Platform Business Model (e.g., Android)

An architecture that enables outside developers to create complementary offerings that add value to the core system.

Differentiation Strategy Risk

The danger that the price differential between the differentiator's product and the cost leader's product becomes too high for customers to justify.

Peloton's Post-Pandemic Struggle

The difficulty in maintaining a differentiation advantage as market conditions shifted and competition for consumer time changed after COVID-19.

Focus Strategy

An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment or niche.

IKEA's Business-Level Strategy

An example of a cost leadership strategy that utilizes a unique value chain to provide acceptable quality at low costs.

Primary Challenge of Integrated Strategy

Avoiding being "stuck in the middle," where the firm fails to achieve either low cost or significant differentiation.

Flexible Manufacturing Systems

A system combining people, technology, and physical resources to reduce the traditional trade-off between low cost and product variety.

Total Quality Management (TQM)

Ssumports integrated strategies by emphasizing continuous improvement to reduce defects and costs while increasing product reliability.

Ron Johnson (JCPenney)

The CEO whose unsuccessful pricing initiative led the retailer to become an example of being "stuck in the middle."

Cost Leadership as an Entry Barrier

Discourages potential competitors by forcing them to enter on a large scale to achieve comparable efficiency or by creating low profit margins.

UPS Residential Delivery Challenge

Operational costs are higher compared to business deliveries because residential stops are more spread out and typically involve fewer packages per stop.

Market Segmentation

The process of clustering people with similar needs into individual and identifiable groups.

Social or Environmental Business Model

A model that aligns profit-making objectives with broader social or environmental purposes.

Unique Risk of Focus Strategies

The risk that a competitor might "out-focus" the firm or that the niche-market customer's needs begin to resemble those of the general market.

Sharing Economy Business Model

Distinguished by the peer-to-peer sharing of access to underutilized goods and services.

Differentiation and Price Tolerance

Customers are more tolerant of higher prices because the product satisfies their unique needs and creates perceived value.

Reach

A dimension of customer relationships focusing on the firm's access and connection to customers.

Guanxi

A concept of social networking and relationship-building considered valuable for firms operating in China.

Business Model vs. Strategy Relationship

Strategy is the plan to achieve competitive advantage, while the business model is the framework for how the firm generates revenue and profit.

Competitive Dynamics

The ongoing pattern of actions and reactions between a firm and its direct competitors as they seek competitive advantage.

Strategic Action

A market-based action that requires substantial organizational commitment and is difficult to reverse.

Political Strategy

Seeking to shape regulations through activities such as lobbying and political donations.

Market Commonality

A component of competitor analysis examining how many markets are shared between a firm and its rivals.

Multimarket Competition

Occurs when competing firms encounter each other across multiple product categories or geographic regions.

Awareness

The extent to which rivals understand their mutual dependence and the potential impact of their competitive actions.

Motivation (Competitive Behavior)

The internal state where a firm believes its position is secure and sees little reason to respond to a rival's move.

Organizational Slack

Resources that are not currently committed to any specific use and serve as a buffer to allow firms to respond to competitive actions.

Second Mover

A company that follows an industry pioneer by learning from customer responses and avoiding the pioneer's mistakes.

Small Organization Competitive Advantage

The ability to possess greater speed and flexibility in responding to competitive moves compared to larger, more bureaucratic rivals.

Quality as a Basic Requirement

The idea that quality is necessary to compete in a market but is often not enough to provide long-term differentiation.

Tactical Action

Market-based actions, such as price cuts, that are easy to implement and reverse but may not be viewed as credible long-term threats.

High Market Dependence

Firms in this position are generally more inclined to respond strongly to competitive attacks that threaten their primary revenue sources.

Slow-cycle Markets

Market environments where competitive advantages endure because imitation is difficult and costly.

Central Concern in Fast-cycle Markets

The rapid imitation of products and the necessity for constant innovation to maintain competitive advantage.

Standard-cycle Market Behavior

Competitive behavior characterized by seeking market share through brand loyalty and moderate speeds of imitation.

Strategic vs. Tactical Action Response

Competitors respond less frequently to strategic actions because they require significant resources and are difficult to implement.

Competitive Blind Spot

A failure to adequately perform competitor analysis, leading to an incomplete understanding of rivals' capabilities or intentions.

Mutual Forbearance

The phenomenon where competition across multiple markets discourages firms from launching attacks against one another.

Disney's Mickey Mouse and Winnie the Pooh

Demonstration of slow-cycle market rivalry where the firm protects its characters through copyrights to prevent imitation.

Fast-cycle Market Pricing Trend

Product prices typically decline rapidly as newer, more advanced generations of products are introduced.

Late Mover Performance

Typically lower than first and second movers as they entering a market that has already matured and stabilized.

Initiation of Competitive Attack

Most likely when a firm has high awareness, motivation, and ability relative to its rival.

Competitive Behavior

The broader category that includes both strategic actions and tactical actions taken in the marketplace.

Airbnb's Entry and High-end Hotels

Research shows high-end differentiator hotels did not immediately lower prices in response to Airbnb because they served different customer segments.

Corporate-level Strategy

Strategy focused on what businesses the corporation should be in and how the corporate office should manage those businesses.

Parenting Advantage

The sign that a corporation possesses this is its ability to create more value through its oversight of businesses than those businesses could alone.

Single Business Diversification Strategy

An approach where a firm derives more than $95\%$ of its revenue from one primary line of business.

UPS Diversification Classification

A form of related diversification because of the shared logistics and distribution resources between package delivery and healthcare logistics.

Related Constrained Diversification

A strategy where businesses share resources and activities, such as that practiced by Campbell Soup Company.

Related Linked Diversification

An approach emphasizing the transfer of knowledge and core competencies across businesses rather than sharing physical resources.

Tata Group

An example of a conglomerate operating under an unrelated diversification strategy with little relationship between its businesses.

Economies of Scope

Cost savings a firm creates by successfully sharing resources or transferring competencies across its different businesses.

Operational Relatedness

Achieving value through the sharing of tangible resources or activities among the firm's business units.

Activity Sharing Drawback

The potential risk of reduced flexibility and increased coordination costs when firms share activities across business units.

Corporate-level Core Competencies

Managerial and technological knowledge, experience, and expertise that are transferred between business units.

Multipoint Competition

Competition between diversified firms that encounter one another in several product or geographic markets.

Apple's Computer Processors

An example of vertical integration where the firm develops its own inputs rather than purchasing them from outside suppliers.

Vertical Integration Risk

The risk of increased fixed costs and the potential for a loss of flexibility in responding to technological shifts.

Unrelated Diversification in Emerging Economies

Often effective because it overcomes the lack of efficient external capital markets and legal systems present in developed economies.

Restructuring Approach

Creating value in unrelated diversification by buying assets at a low price, improving them, and either selling them or holding them for growth.

Value-neutral Motivation for Diversification

Motivations such as antitrust regulations, tax laws, or low performance that do not inherently create or destroy value.

Managerial Incentives for Diversification

Poor organizational performance may encourage managers to diversify to reduce their personal employment risk, even if it doesn't create shareholder value.

Curvilinear Relationship of Diversification

The concept that performance is typically strongest at moderate levels of diversification (related diversification).

Golden Parachutes

Executive compensation agreements that can encourage diversification and risks by protecting managers in the event of an acquisition.

Merger

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

Takeover

A specific type of acquisition where the target firm does not solicit the acquiring firm's bid (often hostile).

Horizontal Acquisition

The acquisition of a company competing in the same industry to increase market power.

Amazon's Purchase of MGM Studios

An example of vertical acquisition or a strategy to control content inputs for its distribution platform.

Acquisition vs. Internal Development

Companies favor acquisitions to enter new markets faster and with lower risk than developing a new business internally.

Cross-border Acquisition Challenge

High levels of complexity due to cultural differences and varying legal and regulatory environments.

Private Synergy

Synergy created when the combination of two firms' assets results in capabilities that could not be achieved by any other combination.

Excessive Diversification Consequence

Managers may become overwhelmed, leading to a reliance on financial controls rather than strategic oversight and a drop in performance.

M&A Failure Proportion

Roughly two-thirds to three-quarters (approx. $66\%$ to $75\%$) of mergers and acquisitions ultimately fail to achieve their intended objectives.

Successful Acquisition Characteristic

Characteristics such as conducting effective due diligence, maintaining low-to-moderate debt, and having friendly negotiations.

Due Diligence

The process of evaluating a target firm for acquisition to determine its true value and potential risks.

Downscoping vs. Downsizing

Downsizing is a reduction in employees or units; downscoping is divesting or spinning off businesses unrelated to the core mission.

Leveraged Buyout (LBO) to Private

A restructuring method where a firm's stock is purchased so that the company is no longer publicly traded.

Long-term Result of Downscoping

The result is most often associated with higher performance due to reduced debt costs and a more focused strategic direction.

Spirit Airlines and Frontier

Spirit initially favored Frontier's proposal due to perceived better strategic fit and fewer regulatory hurdles despite a lower price than JetBlue's.

Activist Investors (e.g., Nelson Peltz)

Investors who buy large stakes in companies to influence management and force corporate restructuring to increase value.

Junk Bonds

High-risk, high-interest financing tools used for acquisitions that are not backed by specific collateral.

Bureaucratic Controls Drawback

Formalized rules and procedures in large organizations that can stifle innovation and decrease overall performance.

Restructuring Strategy for Self-Interest

Approaches like LBOs are intended to fix poor managerial decisions or actions motivated by managerial self-interest rather than shareholder gain.

Loss of Human Capital in Downsizing

A significant downside where the loss of skilled employees leads to reduced institutional knowledge and productivity.