Untitled Flashcards Set

LO 4-1 Why the management of knowledge professionals and knowledge itself is so critical to today’s organizations.

• In the knowledge economy, wealth is increasingly created by the effective management of knowledge workers instead of by the efficient control of physical and financial assets.

• The growing importance of knowledge means that investing in a company is, in essence, buying a set of talents, capabilities, skills, and ideas—intellectual capital—not physical and financial resources.

• In firms where knowledge and the management of knowledge workers are relatively important contributors to developing products and services—and physical resources are less critical—the ratio of market-to-book value tends to be higher.

• Some have defined intellectual capital as the difference between a firm’s market value and book value.

LO 4-2 The importance of recognizing the interdependence of attracting, developing, and retaining human capital. 

• It is helpful to view the three activities—attracting, developing, and retaining human capital—as a three legged stool. That is, it is difficult for firms to be successful if they ignore or are ineffective in any one of these activities. For example, poor hiring practices can impede the effectiveness of development and retention processes. 

• It is important to attract employees who can collaborate with others, given the importance of collective efforts such as teams and task forces. 

• To develop human capital, firms need to encourage widespread involvement throughout the organization, monitor progress and track the development of human capital, and effectively evaluate human capital. 

• To retain human capital, firms need to increase employees’ identification with the organization’s mission and values, ensure challenging work and a stimulating environment, and provide competitive financial and nonfinancial rewards. 

• Organizations have found that redefining jobs and leveraging the benefits of a diverse workforce can go a long way in enhancing their performance.

LO 4-3 The key role of social capital in leveraging human capital within and across the firm. 

• Social capital refers to the network of relationships that individuals have throughout the organization as well as with other stakeholders such as suppliers and customers. Such ties can be critical in obtaining both resources and information. 

• Social ties among talented professionals can also help to attract and retain talent. 

• Four potential downsides of very high levels of social capital in an organization are: (1) a tendency toward groupthink that reinforces shared beliefs, (2) a potential for dysfunctional human resource practices, e.g., hire and employ like-minded people, (3) socialization processes may be expensive in terms of managerial commitment and financial resources, and (4) individuals may use their influence from social networks to pursue their own interests—which may conflict with those of the organization

LO 4-4 The importance of social networks in knowledge management and in promoting career success. 

• Social network analysis depicts the pattern of interactions among individuals and helps to improve communication effectiveness. 

• Effective social networks can play a key role in an individual’s career advancement and success. Three unique advantages are: access to private information, access to diverse skill sets, and greater power and influence

 LO 4-5 The vital role of technology in leveraging knowledge and human capital. 

• Sharing information and knowledge throughout the organization can be a means of conserving resources, developing products and services, and creating new opportunities. 

• Technology can be used to leverage human capital and knowledge within the organization as well as with customers and suppliers beyond their boundaries. 

• Technology can also provide more sophisticated forms of communication. For example, it can be used to facilitate internal and external collaboration and decentralize decision making

 LO 4-6 Why virtual teams are critical in combining and leveraging knowledge in organizations and how they can be made more effective. 

• Technology enables professionals to work as part of virtual teams to enhance the speed and effectiveness with which products and services are developed. 

• The two primary advantages of virtual teams are: (1) they are less restricted by the geographic constraints that are placed on face-to-face teams, and (2) they can be very effective in generating “social capital”—the quality of relationships and networks that form. 

• The two primary challenges of virtual teams are: (1) the members need to identify who among them can provide the most appropriate knowledge and resources, and (2) virtual team leaders and key members must know how to combine individual contributions in the most effective manner for a coordinated and appropriate response.

 LO 4-7 The challenge of protecting intellectual property and the importance of a firm’s dynamic capabilities. 

• Intellectual property are resources owned by the firm in the forms of patents, copyrights, trademarks, and trade secrets. 

• If property rights are not reliably protected by the state, there will be less incentive to develop new products and services. 

• Dynamic capabilities include the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities. 

• Dynamic capabilities, therefore, define a firm’s ability to innovate, adapt, and foster change that is favorable to customers and unfavorable to rivals. 

• Dynamic capabilities can include many different activities that a firm might undertake to create competitive advantages such as product development, strategic decision making, and acquisitions.

LO 5-1 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus. 

• Each of Porter’s generic strategies has the potential to allow a firm to outperform rivals in the industry. 

• Overall cost leadership is based on creating a low-cost position by managing relationships throughout the value chain and lower costs throughout the entire chain. 

• Differentiation requires a firm to create products and/or services that are unique and valued and for which customers will pay a premium. 

• A focus strategy directs attention (or focus) toward narrow product lines, buyer segments, or targeted geographic markets, and allows the firm to attain advantages through either differentiation or cost leadership

LO 5-2 How the successful attainment of generic strategies can improve a firm’s relative power vis-à vis the five forces that determine an industry’s average profitability. 

• Successful generic strategies invariably enhance a firm’s position vis-à-vis the five forces of that industry—a point that we stressed and illustrated with examples

LO 5-3 The pitfalls managers must avoid in striving to attain generic strategies. 

• Potential pitfalls of overall cost leadership strategies include: too much focus on one or a few value chain activities, increase in the cost of the inputs on which the advantage is based, a strategy that can be imitated too easily, a lack of parity on differentiation, reduced flexibility, and obsolescence of the basis of cost advantage. 

• Potential pitfalls of differentiation strategies include: uniqueness that is not valuable, too much differentiation, too high a price premium, differentiation that is easily imitated, dilution of brand identification through product-line extensions, and perceptions of differentiation that vary between buyers and sellers. 

• Potential pitfalls of focus strategies include: cost advantages may erode within the narrow segment, facing competition from new entrants and from imitation, and becoming too focused to satisfy buyer needs

LO 5-4 How firms can effectively combine the generic strategies of overall cost leadership and differentiation. 

• Combining (or integrating) overall cost leadership and generic differentiation strategies can enable a firm to enjoy superior performance and improve its competitive position.

• Such positions are typically difficult for rivals to imitate. 

• However, sustaining a combined strategy is challenging, and managers must be aware of the potential downside risks associated with such an initiative. 

• Failing to attain both strategies and possibly ending up with neither, leaving the firm “stuck in the middle.” 

• Underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain. 

• Miscalculating sources of revenue and profit pools in the firm’s industry.

LO 5-5 What factors determine the sustainability of a firm’s competitive advantage. 

• We addressed the challenges inherent in determining the sustainability of competitive advantages. 

• Drawing on an example from a manufacturing industry, we discussed both the pro and con positions as to why competitive advantages are sustainable over a long period of time.

LO 5-6 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities. 

• We identified the four stages of the industry life cycle—introduction, growth, maturity, and decline—and suggested how these stages can play a role in decisions that managers must make at the business level. 

• In the introduction stage, products are unfamiliar to consumers. Success requires an emphasis on research and development and marketing activities to enhance awareness. 

• In the growth stage, there is a strong increase in sales. The primary key to success is to build consumer preferences for specific brands. 

• In the maturity stage, aggregate industry demand softens. Advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price-sensitive. 

• In the decline stage, firms must face up to the fundamental strategic choices of either existing or staying and attempting to consolidate their position in the industry.

LO 5-7 The need for retrenchment strategies that enable a firm to reposition its competitive position in an industry. 

• We discussed three approaches to executing a retrenchment strategy—asset cost surgery, selective product and market pruning, and piecemeal productivity improvements

LO 6.1 The reasons for the failure of many diversification efforts. 

• Paying an excessive premium for the target firm. 

• Failing to integrate the activities of the newly acquired businesses into the corporate family. 

• Undertaking diversification initiatives that are too easily imitated by the competition.

LO 6.2 How managers can create value through diversification initiatives.

• To create value with related diversification, managers can pursue two paths:

• Economies of scope that are achieved from the leveraging of core competencies and the sharing of activities.

• Market power that is obtained from greater, or pooled, negotiating power and from vertical integration.

To create value with unrelated diversification, the primary ways to create value are corporate

restructuring and parenting, as well as the use of portfolio analysis techniques.

LO 6.3 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power.

• Economies of scope include two elements, leveraging core competencies and sharing activities.

• Core competencies reflect the collective learning in organizations, such as how to coordinate diverse production skills, integrate multiple streams of technology, and market diverse products and services.

• Sharing activities involve the joint issues of value-creating activities, such as common manufacturing facilities, distribution systems, and sales forces by multiple business units in the corporation.

• Market power reflects the firm’s ability to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

•  The two primary means to achieve market power are pooled negotiating power and vertical integration.

LO 6.4 How corporations can use unrelated diversification to attain synergistic benefits through corporate restructuring, parenting, and portfolio analysis. 

• Parenting advantage involves the corporate office providing expertise and support to new business units to improve unit operations in areas such as in planning, financial management, procurement, and human resource management. 

• Restructuring involves the intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing the management, reducing payroll and unnecessary sources of expenses, changing strategies, and infusing the new business with new technologies, processes, and reward systems.

LO 6.5 The various means of engaging in diversification—mergers and acquisitions, joint ventures/strategic alliances, and internal development. 

• Mergers and acquisitions involve the purchasing of another organization and incorporating it into the parent firm. Acquisitions can help a firm: 

- Obtain valuable resources, such as critical human capital, that can help an organization expand its product offerings. 

- Provide the opportunity for firms to attain three bases of synergy: leveraging core competencies, sharing activities, and building market power. 

- Lead to consolidation within an industry and force other players to merge. 

- Enter new market segments. 

• Strategic alliances are cooperative relationships between two or more firms. 

• Joint ventures are a specific form of strategic alliance where the partnering firms create a new legal entity that they jointly own. 

• Strategic alliances can be used to enter new markets, reduce costs in the value chain, or develop and diffuse new technologies. 

Internal development involves the entering of a new business or industry through the investment in new facilities, often referred to as corporate entrepreneurship and new venture development.

LO 6.6 Managerial behaviors that can erode the creation of value. 

• While corporate actions should be aimed to enhance shareholder value, they are likely to erode value when they are driven by the following factors: 

• Growth for growth’s sake

• Egotism 

• Antitakeover tactics