Strategy Final
Terms
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- Vertical Integration
- What activities in the value chian (direct value creation and support functions) should the firm participate in.
- Dimensions of corporate strategy
- expanding business unit scope to increase profitabilty and sustainability.
- Geographical/Global Exapnsion
- What new geographical/gloabal markets offer opportunities to replicate/adapt existing business models, create/build new ones, exploit different types of arbitrage, increase scale/scope, transfer learning, etc..
- Business Diversification
- How deos expanding the scope of operations into adjacent markets improve profitability, sustainability, increse market power, or allow for efficiencies in management.
- Two Essential Questions of Corporate Strategy
- Better of test an ownership test
- Better Off Test
- Does the presence of the corporation in a given market improve the competitive advantage of the other business unitsme over and above what they could achieve on their own. Profit = Q(R-C)*Ti
- Owenership Test
- Does ownership of the business unit produce a greater competitive advantage than an alternative (market or intermediate) arrangement would produce.
- WBMH - Why?
- Strategic Intent/ Strategic Objective/ Corporate Ambition/ Competitive Imperatives (Growth, Efficiency, Knowledge, Customers, Competitors)
- WBMH - Bring/Build?
- What "Travles" across markets? What advantages can be replicated/ adapted/ created/ developed? (Core competencies, competitive advantages, organizational capabilities, business models; what can be created exenteded, renewed)
- WBMH - Meet
- Cost of entry, risk exposusre, market attractiveness (Regional & national ecomony, institutional gaps & voids, policital risk, market/industry structure (barriers), consumer behavior, competitors)
- WBMH - How
- Type of corporate or global strategy, mode of entry, organizational structure, managemnet decision-making style (Related, unrealted, restructuring corporate strategy, exporting, international, global, mulitdomestic, transnational global strategy; market/i
- Determining the Optimal Scope, Control & Flexibility
- Matching benefits with costs and risks
- Benefits
- Include scale, scope, multi-market market power, new profit pools, renewed growth, improved efficiency, new business models, new knowledge & innovation
- Costs
- Include dulled incentives, bureaucratic costs, management distraction, added assets to balance sheet, agency problems, organizational inertia, and diseconomies of scale & scope.
- Risks
- Include loss of flexibility from fixed investments, industry changes, government changes (regulations), etc.
- Extent of Diversification
- Single business, dominant business, related-business (related-linked, related-constrained), unrelated-business
- Single Business
- 95% of revenues from a single business unit
- Dominant Business
- 70-95% from a single business unit
- Vertically Integrated Business
- 70% of sales in value chain
- Related Diversification
- 70% or more from businesses that are related. Business must share product, technological or distribution linkages. Businesses may be related-linked or related constrained.
- Unrelated Diversification
- <70% in related business units
- Bases for Createing Corporate Advantages from Diversification
- Market power, economies of scope & scale, economies of internalizing transactions, internal market system, information advantages
- Economies of Scope
- Cost reduction from achieving minimum scale in an input factor, derived from producing multiple products
- Economies of Scale
- Cost advantages from reaching minimum efficient scale in administrative and control activities by centralizing similar activities at the corporate HQ, and by operating an internal capital market
- Sharing Activities
- Often lowers costs or raises differenciation (achieves economies of scale, boosts effciency of utilization, helps move more rapidly down learning curve)
- Transferring
- Exploits interrelationships among divisions; core competencies leads to competivie advantage only if the similarities among business units alow sharing meaningful expertiese, skills invlove activites which are important to competitive advantage
- Porter's Concepts of Portfolio Management
- 4 main activities for corporate managers in portfolio management: 1. identifying and purchasing acquisition candidates, 2. reducing costs of acquired companies through lower cost of capital of large diversified comanpay, 3. Increasing efficiency by which
- Corporate Restructuring
- Seek out undeveloped, sick or threatended organizations or industries; assumps (requires keen management insight into select firms w/ depressed values or unforeseen potential, must do more than restructure companies, need to initiate restructuring of indu
- Backward Integration
- Producting own inputs
- Foward Integration
- disposing of own outputs
- Transaction Costs
- Costs of using the market to provide a needed activity (ie search costs, barganing costs, dispute mediation costs, etc..)
- Adminstrative Costs
- Costs of owning and managing an activity with in the firm (ie cost of capital, management costs, monitoring costs, cost of capital associated with assets)
- Market Failure Conditions
- Absence of conditions (information, multiple parties, institutional infrastucture support) which lead to effiecient trages in competitive markets
- Market Failurs Framework (Do you need to own it)
- 1. Begin by assuming all activities can be traded for in an efficient market, 2. Estimate costs and risks of using a market, 3. Estimate costs, including lost flexibility, and risks of internalizing, 4. Compare the relative costs of each with an eye to th
- Information Advantages
- Conglomerates in emerging markets, internal captial & labor markets
- Logic of Diversitifaction
- Economies of Scale and Scope; Learing (stretching and leveraging); Information Advantages, Market Power, Avoid Hold-Up, Capturing Profit Pools
- Market Power
- Use company influence to change the game. Being able to set prices.
- Creating a Corporate Advantage
- Managing across divisions (HQ perspective); Divisions receive value from HQ and/or from HQ and/or from other divisions; Economies of scale and scope, and sharing resources and capabilities
- Elements of Global Strategy
- 1. Understnd impact of globalization drivers, 2. assess your core competencies, 3. Understand global context, 4. develop appropriate entry strategies, 5. seek to enhance your global competitive advantage
- Geographic Scope of Competition
- Increases in economies of scale, scope, and learning; reductions in logistical constraints, reductions in barriers to competition
- Global Strategy Perspectives: Global
- High global cordination, integration; Low National differentiation, responsiveness (P&G late 90s)
- Global Strategy Perspectives: Transnational
- High global cordination, integration; High National differentiation, responsiveness (P&G late 90s)
- Global Strategy Perspectives: Multidomestic
- Low global cordination, integration; High National differentiation, responsiveness (P&G late 90s)
- Global Strategy Perspectives
- Low global cordination, integration; Low National differentiation, responsiveness (P&G late 90s)
- Difference in Global Management
- Multiple Operating Environments, Political Demands, Global Competitive Games, Economic Risks, Organizational Complexity and Diversity
- Economic Risks
- Volatility Fx Risk, Inflation, etc. Must consider before making a decision to enter a market. A global presence can help minimize economic risk in the aggregate
- Organizational Complexity and Diversity
- Must understand how to do business internationally as companies become larger and more diverse
- Institutional Voids
- the absence of anything that leads to persistent inefficiencies in product, factor, labor, and/or capital markets
- Overal Country Attractiveness Measures
- Benefits, Costs, Risk