Chapters 6 & 7 Study Guide on Strategic Alliances and Governance

What are the steps of the Build-Borrow-Buy framework?

1. Build: Develop resources internally if available. 2. Borrow: Access resources through contracts or alliances for speed. 3. Buy: Acquire another firm for critical resources when time is limited.

What are the implications of the Build-Borrow-Buy framework?

It ensures companies choose the most efficient path to gain competitive advantage based on resource relevance, tradability, closeness, and integration needs.

Why did Lyft enter into strategic alliances with GM and Waymo?

Lyft sought access to GM's autonomous driving R&D and financial backing, and Waymo's self-driving technology.

What benefits did Lyft gain from its alliances with GM and Waymo?

Access to advanced technology, reduced R&D costs, and faster innovation.

What benefits did GM gain from its alliance with Lyft?

Access to ride-share data and a platform for testing autonomous vehicles.

What benefits did Waymo gain from its alliance with Lyft?

Expanded reach of its platform and opportunities for real-world testing.

What are the benefits of internal development (Build)?

Full control and retention of proprietary knowledge.

What are the risks of internal development (Build)?

Slow process, high costs, and potential lack of required expertise.

What are the benefits of borrowing resources (Borrow)?

Faster access to resources, shared risk, and less capital required.

What are the risks of borrowing resources (Borrow)?

Coordination challenges, knowledge leakage, and partner dependency.

What are the benefits of buying resources (Buy)?

Quick access to capabilities, market share, or entry into new markets.

What are the risks of buying resources (Buy)?

High costs, integration issues, cultural clashes, and potential overpayment.

What are strategic alliances?

Voluntary arrangements between firms involving shared resources to pursue mutual goals.

Why do firms enter into strategic alliances?

To access resources, enter new markets, share risks, and learn new skills.

What is a non-equity alliance?

An arrangement based on contracts (e.g., licensing, supply agreements) with low commitment and control.

What is an equity alliance?

An arrangement where one firm takes partial ownership in another, indicating more commitment and trust.

What is a joint venture?

A new entity created and jointly owned by two or more firms, involving high integration and collaboration.

What is tacit knowledge?

Non-codified, experiential knowledge such as skills and know-how.

How does sharing tacit knowledge contribute to value creation in equity alliances?

It allows deeper collaboration, leading to innovation and long-term value creation that is hard for competitors to replicate.

What are the three phases of alliance management?

1. Partner Selection and Alliance Formation. 2. Alliance Design and Governance. 3. Post-Formation Alliance Management.

What is important in the Partner Selection and Alliance Formation phase?

Ensuring strategic fit and complementary strengths.

What is crucial in the Alliance Design and Governance phase?

Choosing the structure (contractual, equity, JV) and defining roles and decision rights.

What should be focused on in the Post-Formation Alliance Management phase?

Building trust, managing conflicts, and learning/adapting.

What are the success components of strategic alliances?

Trust, coordination, alignment of incentives, learning routines.

What are best practices for maximizing value from strategic alliances?

Aligning goals and incentives, establishing a clear governance structure, regular communication, building trust, monitoring performance, and fostering mutual learning.

Define a merger.

A merger is when two firms combine as equals.

Define an acquisition.

An acquisition is when one firm buys another and absorbs it.

What is a takeover?

A takeover is an acquisition that is often unwanted.

What is a hostile takeover?

A hostile takeover occurs when the target firm resists the acquisition.

What is horizontal integration?

Horizontal integration means merging with or acquiring a competitor in the same industry and stage of the value chain.

What are the sources of value creation from horizontal integration?

Increased market share, reduced competition, and economies of scale/scope.

What are the costs associated with horizontal integration?

Culture clash, antitrust issues, and integration difficulties.

Why do firms pursue mergers and acquisitions?

To achieve speed to market, diversification, synergies, and talent acquisition.

What are the risks associated with mergers and acquisitions?

Overpayment, poor integration, unrealized synergies, and cultural mismatches.

How do mergers impact competitive advantage and value creation?

Mergers can enhance competitive advantage by combining resources, eliminating competition, and improving efficiency, but poor integration can destroy value.

What principal-agent issues affect mergers and acquisitions?

Managers may pursue M&A for personal gain rather than shareholder value, leading to value destruction.

What is managerial hubris?

Managerial hubris is the overconfidence of executives in their ability to manage acquisitions, often resulting in overpayment or poor integration.

How can superior acquisition and integration capability be a source of competitive advantage?

Firms that master the acquisition process can consistently extract value from M&A and sustain a competitive edge.

What is the traditional approach to strategic control?

The traditional approach involves separate and sequential strategy formulation and implementation, with control based on feedback after implementation.

What is the contemporary approach to strategic control?

The contemporary approach features an ongoing feedback loop where strategy and control evolve continuously based on real-time information.

What is the difference between informational control and behavioral control?

Informational control focuses on data gathering to assess strategy effectiveness, while behavioral control influences employee actions through culture, rewards, and boundaries.

What are the three essential elements of behavioral control?

1. Culture: Shared values and norms. 2. Rewards/Incentives: Align actions with goals. 3. Boundaries/Constraints: Set limits to behavior.

What is organizational culture?

Organizational culture is a system of shared values and norms that guide employee behavior.

How is organizational culture built and sustained?

It is built through leadership, hiring practices, storytelling, and rituals.

What are the benefits and downsides of using rewards and incentives for behavioral control?

Benefits include motivating performance and aligning actions with goals. Downsides can include promoting unethical behavior and focusing on short-term results.

What are the characteristics of effective reward and incentive systems?

Effective systems are transparent, fair, performance-based, and aligned with strategy.

How are boundaries and constraints utilized for behavioral control?

Boundaries limit undesirable behavior and are most effective in high-risk environments, when ethical lapses are likely, or where external regulation is strong.

What is corporate governance? Who are the primary participants?

Corporate governance is the system of rules and practices by which a company is directed. Primary participants include shareholders, the Board of Directors, and management.

What is agency theory? Describe the 'agency problem.'

Agency theory explains conflicts between principals (shareholders) and agents (managers). The agency problem arises when managers pursue their interests over those of shareholders.

What are the three primary internal governance mechanisms for monitoring and managing the behavior of managers?

1. Board of Directors: Strength - Oversight; Weakness - May be passive. 2. Ownership Concentration: Strength - Active monitoring; Weakness - May neglect minority shareholders. 3. Incentive Alignment: Strength - Aligns interests; Weakness - May encourage risk-taking or manipulation.

What are the duties of a board of directors?

Duties include monitoring management, approving strategy and compensation, and representing shareholders.

What are the characteristics of an effective board of directors?

Effective boards are diverse, independent, skilled, and active.

What actions might firms take to improve board effectiveness?

Improvements can include regular evaluations, increased transparency, and term limits.

What is shareholder activism? What role does it play in corporate governance?

Shareholder activism involves shareholders pushing for changes in governance, strategy, or performance, playing a key role in holding managers accountable.

How do managerial rewards and incentives align the interests of managers and shareholders?

Rewards like bonuses and stock options align managers' interests with those of shareholders by tying compensation to performance.

What is CEO duality? What are its benefits and disadvantages?

CEO duality occurs when the CEO is also the board chair. Benefits include unified leadership and faster decisions; disadvantages include weakened oversight and potential conflicts of interest.

Describe the market for corporate control and its effect on firm management.

Poor governance can lead to takeovers in the market for corporate control.

What role do auditors play in corporate governance?

Auditors ensure financial transparency.

How do banks and analysts contribute to corporate governance?

Banks and analysts monitor performance.

What is the role of governmental regulators in corporate governance?

Regulators enforce laws.

How does the media influence corporate governance?

The media publicizes misconduct and influences reputation.

What are the key global differences in corporate governance issues and solutions?

U.S. is shareholder-focused with strong legal protections; Europe follows a stakeholder model with more government involvement; Asia has family-owned firms with close government-business ties.