MCE Chapters 1-12 w/o 11

stupid class

Incremental Innovation

Small, gradual improvements made to existing products, services, or processes rather than radical or disruptive changes. Example: adding a new feature to an existing smartphone model.

Strategic Competitiveness

When a company successfully formulates and implements a value-creating strategy that sets it apart from competitors and achieves its long-term goals.

Core Competencies & Capabilities

Core Competencies are the unique strengths a company has that are difficult for competitors to imitate. Capabilities are a company's capacity to deploy its resources in a coordinated way to achieve a goal. Together they form the foundation of a company's competitive advantage.

Hypercompetition (drivers/factors)

A state of intense, rapidly escalating competition where no competitive advantage lasts long. Driven by: globalization, rapid technological change, the internet, deregulation, and shifting consumer demands.

Organizational Resources (types)

The assets a company uses to develop and execute strategies. Types include: tangible resources (physical, financial), intangible resources (brand, patents, knowledge), and human resources (people, skills).

SWOT Analysis

A strategic planning tool that identifies a company's internal Strengths and Weaknesses, and external Opportunities and Threats. Helps companies understand what helps or hurts them competitively.

Competitive Intelligence Gathering

The process by which companies collect and analyze information about their competitors' strategies, products, and performance using legal methods such as public records, market research, and observation.

Political/Legal, Global, Technological & Sociocultural Environments

The four major segments of the external environment: Political/Legal (laws, regulations), Global (international markets, trade), Technological (innovation, R&D), and Sociocultural (demographics, cultural trends, values).

Barriers to Entry

Obstacles that make it difficult for new competitors to enter a market. Examples include: high startup costs, patents, brand loyalty, economies of scale, and government regulations.

Switching Costs

The costs (financial, time, or effort) a customer incurs when changing from one product or service provider to another. High switching costs reduce competition and increase customer retention.

Culture & Human Capital

What is the shared values and behaviors within a company. What refers to the knowledge, skills, and experience of employees. Together they increase a company's competitive value.

Internal Competitive Advantages

Advantages that come from within the company such as superior processes, strong culture, talented employees, or proprietary technology that competitors cannot easily replicate.

Globalization's Impact on Competitive Advantage

Globalization increases competition by opening markets to foreign competitors, but also creates opportunities by expanding customer bases and access to cheaper resources, which can erode or strengthen a company's competitive advantage.

Factors That Increase/Decrease Competitive Advantage

Factors that increase it: strong brand, innovation, efficient processes, talented people. Factors that decrease it: imitation by rivals, resource erosion, poor leadership, and rapidly changing technology.

Cognitive Bias in Decision-Making

A systematic error in thinking that affects the decisions and judgments that managers make. Example: overconfidence bias, where leaders overestimate their company's strengths, leading to poor strategic decisions.

Cost Leadership Strategy

A competitive strategy where a company aims to be the lowest-cost producer in its industry, allowing it to offer lower prices than competitors while still making a profit. Example: Walmart.

Differentiation Strategy

A competitive strategy where a company offers unique products or services that customers perceive as superior, allowing it to charge a premium price. Example: Apple.

Franchise & Subscription Models

A business model where a company licenses its brand and operations to an independent operator.

A model where customers pay a recurring fee for continuous access to a product or service. Example: Netflix.

Advertising & Peer-to-Peer (P2P) Models

Revenue is generated by selling ad space to third parties while offering free content to users. Example: Google.

A platform that connects individuals to exchange goods or services directly. Example: Airbnb, Uber.

Freemium Model

A business model where a basic version of a product is offered for free, while advanced features require payment. Example: Spotify's free vs. premium plans.

First Mover Advantage

The competitive benefit gained by the company that enters a market first. Pros: brand recognition, customer loyalty, resource control. Cons: high risk, high cost, technology may become obsolete.

Second Mover Advantage

The benefit gained by a company that enters a market after the first mover. Pros: learns from first mover's mistakes, lower costs, can offer improved products. Cons: may struggle to win already-loyal customers.

Factors Leading to Intense Rivalry

Numerous or equally balanced competitors, slow industry growth, high fixed costs, lack of differentiation, high exit barriers, and frequent price wars all contribute to intense rivalry.

Motivations to Compete/Hypercompete

Companies are motivated to hypercompete to gain market share, protect existing advantages, respond to competitor moves, achieve economies of scale, or dominate a market before others can.

Pros & Cons of Each Mover Strategy

First Mover Pros: market leadership, brand loyalty, patents. First Mover Cons: high R&D costs, market uncertainty. Second Mover Pros: reduced risk, improved products. Second Mover Cons: difficulty displacing established competitors.

Corporate Level Strategy

The overall plan a company uses to manage and coordinate its various business units to achieve long-term goals and increase overall value. Answers the question: "What businesses should we be in?"

Dominant Business Strategy

A strategy where a company generates the vast majority (typically 70-95%) of its revenue from a single core business while potentially having minor operations in other areas.

Diversification (types & reasons)

The strategy of expanding into new markets or industries. Related diversification: entering businesses that share resources or capabilities. Unrelated diversification: entering entirely different industries. Reasons: reduce risk, increase revenue, leverage excess resources.

Value Creation Through Diversification

Companies create value through diversification by achieving economies of scope, sharing core competencies across business units, reducing risk, and using internal capital markets more efficiently than external ones.

Shifting Core Competencies to New Areas

When a company takes the unique skills and strengths it has developed in one business area and applies them to enter or compete in new markets. Example: Amazon shifting its IT infrastructure competency into AWS (cloud services).

Hostile Takeovers, Mergers & Acquisitions

Hostile Takeover: When one company acquires another without the consent of its management, often by buying shares directly from shareholders. Merger: Two companies combine to form a new entity. Acquisition: One company purchases another and absorbs it.

Financial Impact on Acquiring vs. Acquired Companies

Acquiring companies often see short-term stock price declines due to the premium paid. Acquired companies typically see a stock price increase because acquirers pay above market value to gain control.

Vertical Acquisition

When a company acquires another company in its own supply chain, either upstream (buying suppliers) or downstream (buying distributors or clients) to control costs and quality. Example: a car manufacturer buying a steel company.

Horizontal Acquisition

When a company acquires a competitor in the same industry to increase market share, reduce competition, and achieve economies of scale. Example: Facebook acquiring Instagram.

Risks of Entering New Markets & Broadening Competitive Scope

Risks include: unfamiliarity with the market, cultural differences, regulatory hurdles, increased competition, integration challenges, and overextension of resources. Broadening competitive scope can dilute focus and stretch capabilities too thin.

International strategy

A strategy through which the firm sells its goods and/or services outside its domestic market.

International diversification strategy

A strategy through which a firm expands the production and/or sales of its goods and/or services across the borders of global regions and countries.

Incentives to go international

Increased market size, location advantages (raw materials, cheap labor), extending product life cycle, economies of scale, access to emerging markets, better use of new technologies.

Increased market size

firms expand beyond the domestic market to tap emerging demand and gain economies of scale.

Location advantages

An incentive for international strategy; access to raw materials, energy, or cheaper labor by locating facilities in other countries.

Liability of foreignness

The challenge and risk firms face when entering a foreign country due to lack of knowledge of local culture, norms, and institutions.

Political and legal risks

Risks to international strategy including government regulation uncertainty, conflicting legal authorities, corruption, and nationalization of private assets.

Economic risks

Risks to international strategy including weak IP protection, currency fluctuations, and economic weaknesses in the host country.

Political risk analysis

Analysis a firm conducts before entering a country to examine potential noncommercial disruptions to foreign investments.

Regionalization

A global environmental trend where countries form trade agreements to increase the economic power of their region.

Global value chain

A supply chain that spans multiple countries, increasingly popular in international strategy.

Three international corporate-level strategies

Multidomestic, global, and transnational strategies.

Five modes of entry into international markets

Exporting, licensing, strategic alliances, acquisitions, and new wholly owned subsidiaries (greenfield ventures).

Cooperative strategy

A strategy in which firms work together to achieve a shared objective.

Strategic alliance

A cooperative strategy in which firms combine some of their resources to create a competitive advantage.

Three major types of strategic alliances

Joint ventures, equity strategic alliances, and nonequity strategic alliances.

Joint venture

A strategic alliance in which two or more firms create a legally independent company to share resources; partners usually own equal percentages.

Equity strategic alliance

An alliance in which two or more firms own different percentages of a company they have formed by combining resources.

Nonequity strategic alliance

An alliance based on a contractual relationship with no equity; less formal, lower commitment, unsuitable for complex projects requiring tacit-knowledge transfer.

Reasons firms form strategic alliances

To create value they could not generate alone, to enter markets more rapidly, and because most firms lack the full set of resources needed to pursue every opportunity.

Cross-border strategic alliance

A cooperative strategy in which firms headquartered in different countries combine resources to create a competitive advantage.

Why firms use cross-border alliances

Limited domestic growth opportunities and foreign government economic policies; helps overcome the liability of foreignness.

Cross-border alliance risks

Riskier than domestic alliances due to cultural differences and difficulty establishing trust among partners.

Business-level cooperative strategies

Complementary alliances (vertical and horizontal), competition response strategies, uncertainty-reducing strategies, and competition-reducing strategies.

Complementary strategic alliance

A business-level alliance where firms share resources in complementary ways to create a competitive advantage.

Corporate-level cooperative strategies

Diversifying, synergistic, and franchising alliances; help firms diversify in terms of products, markets, or both.

Network cooperative strategy

a collaborative approach where multiple firms form multiple partnerships to achieve shared objectives, such as innovation, market access, or cost reduction

Corporate governance

The set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations.

Three internal governance mechanisms

Ownership concentration, the board of directors, and executive compensation.

Agency relationship

Exists when one party (the principal/owner) delegates decision-making responsibility to another party (the agent/manager) for compensation.

Principal

In an agency relationship, the owner who delegates decision-making to an agent.

Agent

In an agency relationship, the manager hired to make decisions on behalf of the principal.

Managerial opportunism

The seeking of self-interest with guile (cunning or deceit) by managers, at the expense of shareholders.

Agency costs

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

Ownership concentration

Defined by the number of large-block shareholders and the total percentage of the firm's shares they own.

Large-block shareholders

Shareholders who typically own at least 5 percent of a company's issued shares.

Diffuse ownership

A large number of shareholders with small holdings and few large-block shareholders; produces weak monitoring of managers.

Institutional owners

Financial institutions such as mutual funds and pension funds that control large-block shareholder positions; hold 60-75% of U.S. firm equity.

Patient capital

Investment capital from investors willing to invest over the long term rather than seek immediate returns.

Shareholder activism

Actions shareholders take with the intent of influencing corporate policy and practice.

Wolf pack

A group of activist investors led by one activist (often a hedge fund) who work together to influence a firm.

Board of directors

A group of elected individuals whose primary responsibility is to act in owners' best interests by monitoring and controlling top-level managers.

Insiders (board)

Board members who are the firm's CEO and other top-level managers.

Related outsiders (board)

Board members not involved in day-to-day operations but who have a relationship with the company.

Outsiders (board)

Board members who are completely independent of the firm in terms of day-to-day operations and other relationships.

Insider-dominated board

A board with significant insider membership; provides relatively weak monitoring and control of managerial decisions.

How to strengthen a board

Increase diversity of members, strengthen internal controls, focus on CSR, formally evaluate board performance, and modify director compensation.

Executive compensation

A governance mechanism that seeks to align managers' interests with shareholders', often using salary, bonuses, and long-term incentives like stock options.

Market for corporate control

An external governance mechanism that becomes active when a firm's internal controls fail; involves hostile takeovers to replace ineffective management.

Whistleblower

An employee who draws attention to wrongdoing (illegal, unethical, or harmful activity) inside their organization.

Ethical behavior and governance

The board of directors can be an effective deterrent to unethical behavior by top-level managers.

Strategic leadership

The ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary.

Top management team (TMT)

The group of managers responsible for developing and implementing the firm's strategies; guards against CEO hubris.

Heterogeneous top management team

A team composed of individuals with different functional backgrounds, experience, and education.

Transformational leadership

One of the most effective strategic leadership styles; motivates followers to exceed expectations, strengthens capabilities through training, and puts the organization's interests first.

Traits of transformational leaders

Develop and communicate vision, have emotional intelligence, promote innovation, and work with others to execute strategy.

Emotional intelligence

Understanding oneself, having strong motivation, empathy for others, and effective interpersonal skills.

Transactional leadership

A leadership style that motivates followers through rewards and punishments ("this for that" exchanges); focused on short-term performance.

Legitimate power

Power from holding a formal position in the organization.

Reward power

Power based on the ability to give others desirable outcomes.

Coercive power

Power based on the ability to punish or withhold rewards.

Expert power

Power from specialized knowledge or skill.

Referent power

Power from personal traits or charisma that make others admire the leader.

Managerial succession

The process of planning for and selecting new top-level managers; one of the most crucial events in a firm's life.

Internal managerial labor market

The firm's own managerial opportunities and the qualified employees within the firm who could fill them.