Kuban Final GROUP ATE

How does corporate-level strategy differ from business-level strategy?

Corporate-level strategy involves diversification, vertical integration, acquisitions, and resource allocation across businesses, whereas business-level strategy focuses on positioning and differentiation to exploit core competencies within a single industry or market.

What are the three dimensions of corporate strategy?

Vertical integration (participation in stages of the industry value chain), horizontal diversification of products and services, and geographic scope (regional, national, or global markets).

What is vertical integration?

The extent to which a firm owns or controls each stage of the industry value chain, transforming raw materials into finished goods and services.

What are the five key motivations for firms to grow?

Increase profits, lower costs, increase market power, reduce risk, and motivate management and employees.

Why are not all growth motives equally valuable?

Increasing profits and lowering expenses are clearly related to enhancing a firm's competitive advantage, whereas increasing market power can contribute to a greater competitive advantage but may also result in legal repercussions such as antitrust lawsuits.

What does horizontal diversification consider?

The range of products and services a company offers.

What does geographic scope address in corporate strategy?

Where the company competes geographically in terms of regional, national, or international markets.

What are the stages of the industry value chain?

The transformation of raw materials into finished goods and services along distinct vertical stages.

What is corporate-level strategy?

The integrated set of actions the firm takes to gain additional competitive advantage by selecting and managing a group of businesses in multiple industries or markets.

What does corporate-level strategy involve?

Diversification, vertical integration, acquisitions, and resource allocation.

What is business-level strategy?

The integrated set of actions the firm takes to gain a competitive advantage by exploiting core competencies within a single industry or market.

What are the three dimensions of corporate strategy?

Vertical integration, diversification, and geographic scope.

What key question does corporate strategy answer?

Where to compete.

What is vertical integration?

Participation in specific stages of the industry value chain.

What is horizontal diversification?

The range of products and services a company should offer.

What is geographic scope?

The geographical areas where a company should compete.

What are the five key motivations for firms to grow?

Increase profits, lower costs, increase market power, reduce risk, and motivate management and employees.

What are transaction costs?

All internal and external costs associated with an economic exchange.

What are internal transaction costs?

Costs associated with recruiting and retaining employees and setting up a shop floor.

What are external transaction costs?

Costs related to searching for contractors and negotiating, monitoring, and enforcing contracts.

How do firms decide whether to make or buy?

By comparing the cost of doing the activity in-house with the cost of buying it from the market.

When should a firm make in-house?

When the cost of doing the activity in-house is less than the cost of buying it from the market.

What are the advantages of making in-house?

Lower internal costs, more control over quality, reduced monitoring costs, and protection of proprietary knowledge.

What are the disadvantages of making in-house?

Higher fixed costs, requires long-term investment, less flexibility, and risk of inefficiency.

What are the advantages of buying (outsourcing)?

Access to specialized suppliers, more flexibility, avoids large internal investments, and allows focus on core activities.

What are the disadvantages of buying (outsourcing)?

High transaction costs, lower control over quality, risk of supplier opportunism, and potential sharing of sensitive information.

What is the principal-agent problem?

A situation where an agent performing activities on behalf of a principal pursues his or her own interests.

What is opportunism in external transactions?

Outside partners act selfishly, taking advantage of contract gaps.

What is the hold-up problem?

Occurs when a firm makes relationship-specific investments and the supplier exploits this dependency later.

What is information asymmetry?

One party has more or better information than the other, causing market failures.

What is backward vertical integration?

Moving ownership of activities upstream to the originating inputs of the value chain.

What is forward vertical integration?

Moving ownership of activities closer to the end customer in the value chain.

What are the benefits of vertical integration?

Increased control over supply chain, reduced costs, and improved coordination.

What are the risks of vertical integration?

Higher fixed costs, reduced flexibility, and potential inefficiencies.

What are the benefits of lowering costs in business?

Lowering costs can improve quality, facilitate scheduling and planning, and secure critical supplies and distribution channels.

What are the risks associated with increasing costs in business?

Increasing costs can reduce quality, flexibility, and increase the potential for legal repercussions.

What is taper integration?

Taper integration is a strategy where a firm is backwardly integrated but also relies on outside-market firms for some supplies, or is forwardly integrated but relies on outside-market firms for some distribution.

What is strategic outsourcing?

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

What is diversification in business?

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

What is product diversification?

Product diversification is a corporate strategy where a firm is active in several different product markets.

What is geographic diversification?

Geographic diversification is a corporate strategy where a firm is active in several different countries.

What are the benefits of diversification?

Benefits include risk reduction, growth opportunities, economies of scope, leveraging core competencies, market power and synergy, financial synergies, and strategic renewal.

What characterizes a single business firm?

A single business firm derives more than 95% of its revenues from one business.

What is a dominant business?

A dominant business derives between 70% and 95% of its revenue from a single business but pursues at least one other business activity.

What is related diversification?

Related diversification is when a firm derives less than 70% of its revenues from a single business and obtains revenues from other linked business activities.

What is unrelated diversification?

Unrelated diversification is when a firm derives less than 70% of its revenues from a single business with few linkages among its businesses.

How do firms benefit from related diversification?

Firms build new or extend current resources and capabilities to create value.

What is the core competence-market matrix?

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

What is a diversification discount?

A diversification discount occurs when the stock price of unrelated-diversified firms is valued at less than the sum of their individual business units.

What is a diversification premium?

A diversification premium occurs when the stock price of related-diversification firms is valued at greater than the sum of their individual business units.

What is restructuring in a business context?

Restructuring is the process of reorganizing and divesting business units to refocus a company on its core competencies.

What is the Boston Consulting Group (BCG) matrix?

The BCG matrix is a corporate planning tool that categorizes business units based on relative market share and market growth.

What are the four categories of the BCG matrix?

The four categories are stars, cash cows, dogs, and question marks.

What are the characteristics of stars in the BCG matrix?

Stars combine high market share with high growth and should receive heavy investment to maintain or improve their position.

What are cash cows in the BCG matrix?

Cash cows have high market share but low growth and generate large cash flows for funding growth businesses.

What are dogs in the BCG matrix?

Dogs have low market share and low growth, adding little profitability to a company's portfolio.

What are question marks in the BCG matrix?

Question marks require significant investment and effective management to potentially become stars.

What is the Build-Borrow-Buy framework?

It is a framework for deciding whether to build internal capabilities, borrow through alliances, or buy through acquisitions.

What are the benefits of internal development (Build)?

Benefits include full control, protection of culture, and fewer integration problems.

What are the risks of internal development (Build)?

Risks include being slow, expensive, and potentially lacking needed expertise.

What are the benefits of strategic alliances (Borrow)?

Benefits include faster access to resources, lower costs, and more flexibility.

What are the risks of strategic alliances (Borrow)?

Risks include knowledge leakage, less control, and coordination challenges.

What are the benefits of mergers and acquisitions?

Fast access to new capabilities, markets, and technologies; potential competitive advantage with strong integration capability.

What are the risks associated with mergers and acquisitions?

Very costly, many deals fail to create value, integration difficulties, culture conflicts, and principal-agent issues.

What are strategic alliances?

Voluntary arrangements between firms that involve sharing knowledge, resources, and capabilities to develop processes, products, or services.

Why do firms enter into strategic alliances?

To keep pace with the rapid growth of technology and innovation and globalization.

What is a non-equity strategic alliance?

A contractual relationship between two or more firms to share some of their unique resources and capabilities.

What is an equity strategic alliance?

A legally independent company created by two or more firms sharing resources and capabilities, or one firm taking partial ownership of another.

What is a joint venture?

A legally independent company created by two or more firms sharing resources and capabilities with equal percentages of equity.

What is tacit knowledge?

Personal, subjective, and informal information gained through individual experiences, skills, and perceptions that is difficult to articulate.

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

It enhances collaboration and innovation by leveraging individual experiences and skills.

What are the three phases of alliance management?

1. Partner selection, 2. Governance and communication, 3. Performance monitoring.

What are best practices for maximizing value from strategic alliances?

Selecting complementary partners, establishing clear goals, building trust, managing knowledge sharing, and monitoring performance.

What is a merger?

The joining of two independent companies to form a combined entity, usually through a friendly agreement.

What is an acquisition?

The purchase or takeover of one company by another.

What is a takeover?

When one company purchases or assumes control of another company.

What is a hostile takeover?

An acquisition where the target firm does not want to be acquired and the acquiring company attempts to take control against the target's management.

What is horizontal integration?

When a firm acquires another firm at the same stage of the value chain, often a competitor in the same industry.

What are the benefits of pursuing mergers and acquisitions?

Enter new markets, strengthen competitive position, gain access to new capabilities, achieve economies of scale, and increase market power.

What are the risks of pursuing mergers and acquisitions?

Destroying shareholder value, overpayment for targets, integration problems, culture clashes, and failure to realize expected synergies.

How do mergers impact competitive advantage and value creation?

Mergers can create value by strengthening resources, increasing market reach, or reducing costs, but many fail to deliver synergies.

What principal-agent issues affect mergers and acquisitions?

Managers may pursue acquisitions for personal gain rather than shareholder benefit, leading to unrelated diversification and value destruction.

What is managerial hubris?

A form of self-delusion where managers believe in their superior skills despite evidence to the contrary.

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

It allows a firm to identify and integrate target companies more effectively, creating a sustained competitive advantage.

What is the traditional approach to strategic control?

A single feedback loop from performance measurement to strategy formulation with lengthy time lags.

When is the traditional approach to strategic control most appropriate?

When the environment is stable and relatively simple, and objectives can be measured with certainty.

What is the contemporary approach to strategic control?

An interactive relationship between strategy formulation, implementation, and control, using informational and behavioral control.

What is informational control?

Focus on constantly changing information that has potential strategic importance, requiring frequent attention.

What is behavioral control?

Focus on the behaviors and actions of individuals within the organization to ensure alignment with strategic goals.

What is the role of informational control in implementing strategic control?

It serves as a catalyst for ongoing debate about data, assumptions, and plans.

What is the focus of Informational Control?

Constantly changing information through continuous monitoring, testing, and review.

What are the three essential elements of Behavioral Control?

Culture, Rewards, Boundaries.

What is organizational culture?

A system of shared values and beliefs that produces behavioral norms within an organization.

What are the characteristics of a strong organizational culture?

Leads to greater employee engagement and provides a common purpose and identity.

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

Influences culture, focuses efforts on important tasks, and motivates performance.

What are potential downsides to reward systems?

May reinforce subcultural values, lead to information hoarding, and misalign individual actions with compensation.

What are the characteristics of effective reward systems?

Objectives are clear, rewards linked to performance, performance measures are visible, feedback is prompt, and the system is perceived as fair.

How are boundaries utilized for behavioral control?

Explicit rules that specify acceptable and unacceptable behaviors, focusing efforts on strategic priorities.

What is corporate governance?

The relationship among participants determining the direction and performance of corporations.

Who are the primary participants in corporate governance?

Shareholders, management (led by CEO), and the board of directors.