Business Management Policy Exam 2

What are the three things entrepreneurs do?

• Identify opportunities not perceived by others

• Take actions to exploit opportunities

• Establish a competitive advantage

Who can be an entrepreneur within a company

Can be any manager or employee in an organization

What is the relationship between entrepreneurial activity and economic developer

There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation. This is because entrepreneurship can fuel economic growth, create economic employment, and generate prosperity.

What are the two forms of internal corporate venturing?

• Autonomous strategic behavior (Ex: FedEx Overnight Service)

• Induced strategic behavior (Ex: Price War Reactions, price cuts)

How can organizational politics get in the way of cross-functional team effectiveness?

Organizational politics can cause aggressive competition for resources among different organizational functions. Additionally, organizations must achieve cross-functional integration with minimal political conflict

What are some of the risks of acquisitions?

• The firm may substitute the ability to buy innovations for an ability to produce innovations internally

• The firm may lose intensity in R&D efforts

• The firm may lose its ability to produce patent

What is the main issue concerning corporate-level strategy?

• What businesses should be in

• How should the corporate office manage the group of businesses (Ex: Culture Building)

What are the three value-creating strategies of diversification

• Market Power: Related Constrained Diversification Vertical Integration (Ex: Apple with their IOS or brand loyalty)

• Rare capability that creates diseconomies of scope: Both Operational and Corporate Relatedness (Unique Brand Image Constraint)

• Financial Economies: Unrelated Diversification (Ex: Disney luxury real estate insider their Walt Disney World Resort in Florida)

• Economies of Scope: Related Linked Diversification (Ex: Honda used to make motorcycles and now cars)

What are the two ways in which corporate relatedness can create value

• Limited resource duplication in the need to allocate resources for unit to develop a competence that already exists in another unit

• Provides intangible resources (resource intangibility) that are difficult for competitors to understand and imitate

  • A transferred intangible resource gives the unit receiving it an immediate competitive advantage over its rivals

What are the three managerial motives to diversify

• Managerial risk reduction (Ex: employee training)

• Desire for increased compensation 

• Build personal performance reputation

What does CAGE stand for

Cultural distance

Administrative distance 

Geographic distance 

Economic distance

What are the five possible location advantages

• Raw materials 

• Transportation 

• Lower cost for labor

• Key customers

• Energy

What are the five inputs necessary for competing in any industry

• Labor

• Land 

• Natural resources

• Capital 

• Infrastructure

What are the three international corporate-level strategies? How do they differ?

• Global Strategy (Ex: Samsung)

• Transnational strategy (Ex: Tailored Product Development ("Made for India"))

• Multidomestic strategy (Ex: marketing)

When is exporting the best choice of entry

When the firm has no manufacturing expertise and requires investment only distribution

When is a wholly-owned subsidiary the best choice of entry?

The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high

What are some of the risks inherent in international strategy

Political and economic risks

What are some of the management problems that can hinder international expansion?

• Cost of coordination across diverse geographical business units

• Institutional and cultural barriers

• Understanding strategic intent of competitors

• The overall complexity of competition

Strategic controls are concerned with examining the fit between?

• What the firm might do (opportunities in its external environment) (Ex: adopting new technologies)

• What the firm can do (competitive advantages) (Ex: Patent)

What are the benefits of multidivisional structure?

• Corporate officers are able to more accurately monitor the performance of each business, which simplifies the problem of control

• Facilitates comparisons between divisions, which improves the resource allocation process

• Stimulates mangers of poorly performing divisions to look for ways of improving performance

What are the three benefits from internal competition?

• Flexibility corporate headquarters can have divisions working on different technologies to identify those with greatest future potential

• Challenges the status quo and inertia

• Motivates effort

What is a strategic network

A group of firms formed to create value by participating in multiple cooperative arrangements such as alliances and joint ventures

What are the three factors affecting decision-making discretion

• External environmental sources (Ex: tariffs)

• Characteristics of the organization (Ex: To help build a better world, where every person is free to move and pursue their dreams - Ford)

• Characteristics of the manager (Ex: focus on empowering their team rather than micromanaging)

What is CEO duality

May also hold the position of chairman of the board

What is the advantage of using an external managerial labor market?

Long-tenured insiders may be “stale in the saddle” but outsiders may bring fresh perspectives

What is social capital?

Relationships inside and outside the firm that help it accomplish tasks and create value for customers and shareholders

What does using the balanced scorecard prevent?

Prevents overemphasis of financial controls at the expense of strategic controls

What does managerial opportunism prevent?

The maximization of shareholder wealth (primary goal of owner/principals)

Be able to provide a short list of agency costs

The sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals, because governance mechanisms cannot guarantee total compliance by the agent

How can institutional investors influence management strategies?

Can affect the firm’s choice of strategies as they have the size (proxy voting power) and incentive (demand for returns to funds) to discipline ineffective top-level managers

What are the three categories of board members?

• Insiders: the firm’s CEO and other top-level managers

• Related outsiders: individuals uninvolved with day-to-day operations, but who have a relationship with the firm (Ex: Suppliers)

• Outsiders: individuals who are independent of the firm’s day-to-day operations and other relationships (Ex: Board of directors)

What is the “market for corporate control”

• Individuals and firms buy or take over undervalued firms. Ineffective managers are usually replaced in such takeovers. 

• Threat of takeover may lead firm to operate more efficiently

• Changes in regulations have made hostile takeovers difficult

What are some of the managerial defense tactics available to prevent hostile takeover

• Asset restructuring

• Changes in the financial structure of firm

• Shareholder approval

How can boards become more effective

• More diversity in the backgrounds of board members

• Stronger internal management and accounting control systems

• More formal processes to evaluate the boards performance

• Adopting a “lead director” role

• Changes in compensation of directors