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MGMT 466 - Ch 6
Corporate-Level Strategy
27
Management
Undergraduate 4
10/15/2009

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Term
corporate-level strategy
Definition
a __ specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product market
Term
1. in what product markets and businesses should the firm compete 2. how corporate headquarters manage those businesses
Definition
2 concerns of corporate-level strategy
Term
1. single business 2. dominant business
Definition
2 types of low level diversification
Term
1. related constrained 2. related linked (mixed related and unrelated)
Definition
2 types of moderate to high level diversification
Term
1. unrelated
Definition
type of very high level diversification
Term
single business (low level)
Definition
__ diversification is where 95% or more of revenue comes from a single business
Term
dominant business (low level)
Definition
__ diversification is where between 70% and 95% of revenue comes from a single business
Term
related constraint (mod to high)
Definition
__ diversification is when less than 70% of revenue comes from the dominant business, and all business share product, technological, and distribution linkages
Term
related linked (mixed related and unrelated) (mod to high)
Definition
__ diversification is when less than 70% of revenue comes from the dominant business, and there are only limited links between businesses
Term
unrelated (high)
Definition
__ diversification is when less than 70% of revenue comes from dominant business, and there are no common links between businesses
Term
1. to increase firm's value by improving its overall performance. 2. to neutralize a competitor's market power. 3. executive's desire to protect his own job by lowering the firm's risk (and thus returns)
Definition
3 reasons for diversification
Term
1. economies of scope (sharing activities, transferring core competencies) 2. market power (blocking competitors, vertical integration) 3. financial economies [unrelated divers] (efficient internal capital allocation, business restructuring)
Definition
3 types of value creating diversification
Term
1. antitrust regulation 2. tax laws 3. low performance 4. uncertain future cash flows 5. risk reduction for firm 6. tangible resources 7. intangible resources
Definition
7 types of value-neutral diversification
Term
1. diversifying managerial employment risk 2. increasing managerial compensation
Definition
2 types of value-reducing diversification
Term
1. operation relatedness: sharing activities 2. corporate relatedness: transferring of core competencies 3. market power 4. simultaneous operational relatedness and corporate relatedness
Definition
4 facets of related constrained and related linked diversification
Term
operational relatedness
Definition
firms make __ by sharing either a primary activity (inventory delivery system) or support activity (purchasing practices). synergy can be created. is also risky because ties among a firm's businesses create links between outcomes
Term
corporate-level core competencies
Definition
__ are complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience and expertise
Term
1. transferring a core competence to another business is easier than creating a new one 2. resource intangibility. intangible resources are difficult for competitors to understand and imitate
Definition
2 ways to create value through corporate relatedness
Term
economies of scope
Definition
__ are cost savings that the firm creates by successfully sharing some of its resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses
Term
market power
Definition
__ exists when a firm is able to sell its products above the existing competitive level or to reduce the costs of its primary and support activities below the competitive level, or both
Term
multipoint competition
Definition
__ exists when two or more diversified firms simultaneously compete in the same product areas or geographical markets
Term
vertical integration
Definition
__ exists when a company produces its own inputs (backward) or owns its on source of output distribution (forward)
Term
financial economies
Definition
__ are cost savings realized through improved allocation of financial resources based on investments inside or outside the firm
Term
corporate headquarters office
Definition
in large diversified firms, the __ distributes capital to its businesses to create value for the overall corporation. the nature of these distributions may generate gains from internal capital market allocations that exceed the gains that would accrue to shareholders as a result of capital being allocated by the external capital market.
Term
READITSTUPID!
Definition
pg 165, Efficient Internal Capital Market Allocation
Term
1. external investors have limited access to internal information and can only the performances of individual businesses and their future prospects 2. info provided to capital markets may not include negative information (may not be full and complete disclosure) 3. firm's info is then available to competitors
Definition
3 disadvantages of external capital market (or advantages to use internal capital market)
Term
conglomerate discount
Definition
the __ results from analysts not knowing how to value a vast array of large businesses with complex financial reports. to overcome this, many unrelated diversified conglomerates have sought to establish a brand fro the parent company
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