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Definition
| Strategy for competing against rivals within a particular industry or industry segment |
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Definition
| Strategy for guiding a firm's entry and exit from different businesses, for deterring how a parent company adds value to and manages its portfolio of business, and for creating value through diversification |
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Definition
Actions that firms use to try to compete successfully only within a single industry
Examples) McDonald's, Starbucks, Subway |
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| 3 Types of Concentration Strategies |
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Definition
Market Penetration
Market Development
Product Development |
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Definition
| an attempt to gain additional share of existing markets using existing products (advertising campaigns) |
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Definition
| Trying to sell existing products within new markets (Starbucks coffee in grocery stores) |
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Definition
Creating new products to serve existing markets
(McDonald's expanding healthy menu) |
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Definition
| Pursuing a concentration strategy by acquiring or merging with a rival |
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Definition
| when one company purchases another company |
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Definition
| the joining of two similarly sized companies into one company |
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Term
| Why is horizontal integration often a good idea? |
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Definition
Economies of scale
reduce rivalry
access to distribution channels |
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| What could go wrong with horizontal integration? |
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Definition
60% of M&A are bad for shareholder wealth
30-45% are undone
Culture clash |
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Term
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Definition
| When a firm gets involved in new portions of the value chain |
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Term
| What would Porter say about vertical integration? |
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Definition
Reduce buyer or supplier power
Increase profit potential in an industry |
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Term
| What risks do you run not being vertical integrated? |
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Definition
Loss of price control
No control over lead time |
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Term
| What risks do you run being vertically integrated? |
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Definition
You have to compete in a new industry
could be more expensive
You might not be that good in the industry |
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Term
| Backward Vertical Integration |
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Definition
A strategy that involves a buyer entering the industry that it purchases goods or services from
(Ford creating subsidiaries that provide key inputs to vehicles such as rubber, glass, and metal) |
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Term
| Forward Vertical Integration |
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Definition
A strategy that involves a supplier entering the industry that it supplies inputs to
(Disney operating retail stores that sell merchandise based on disney's characters and movies) |
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Term
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Definition
| involve a firm entering entirely new industries |
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Definition
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Definition
| Condition under which the combined benefits of activities in two or more arenas (Industries) are greater than the simple sum of those benefits |
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| Three Tests for Diversification |
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Definition
How attractive is the industry the firm is considering entering?
How much will it cost to enter the industry?
Will the new unit and the firm be better off? |
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Term
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Definition
When a firm moves into a new industry that has important similarities with the firm's existing industry or industries
(Disney purchased ABC) |
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Term
| Purpose of Related Diversification |
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Definition
| To develop and exploit core competencies (Skill set that is difficult for competitors to imitate and can be leveraged in different business) |
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Term
| Unrelated Diversification |
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Definition
| When a firm enters an industry that lacks any important similarities with the firm's existing industry or industries |
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Term
| Portfolio Planning Purpose |
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Definition
To guide resource allocation across business unit; to help make decisions
Key assumption: resources are constrained (you only have so much $ to work with) |
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Term
| Portfolio Planning is based on |
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Definition
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Term
| The Boston Consulting Group (BCG) matrix |
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Definition
Best-known approach to portfolio planning
Using the matrix requires a firm's businesses to be categorized as high or low along two dimensions
1. It's share of the market
2.The growth rate of its industry |
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Term
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Definition
| reducing the size of part of a firm's operations, ofter through laying off employees |
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Definition
| Selling off part of a firm's operations |
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Definition
| creating a new company whose stock is owned by investors out of a piece of a bigger company |
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Term
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Definition
| the tendency of investors to undervalue the shares of a diversified firm |
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Definition
| shutting down portions of a firm's operations, often at a tremendous financial loss |
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