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mgmt 680
test 2
289
Management
Graduate
10/13/2011

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Term
related constrained diversification
Definition
focuses on managing different businesses
Term
corporate level strategies
Definition
strategies firms use to diversify their operations from a single business competing in a single market into severla product markets and, most comomnly, into several businees
Term
corporate level strategy
Definition
specifics actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product market
Term
corporate level strategies
Definition
help companies select new strategic positions - positions that are expected to increase the firm's value
Term
horizontal integration
Definition
when firms acquire competitors
Term
vertical integration
Definition
when firms buy a supplier or customer
Term
diversification
Definition
focus of basic corporate strategy
Term
corporate level (company wide)
busienss level (competitive)
Definition
two types of strategies
Term
corporate level strategy
Definition
concerned with two key issues: in what product markets and busienss the firm should compete and how corporate headquarters should manage those businesses
Term
in what product markets and busienss the firm should compete and how corporate headquarters should manage those businesses
Definition
two key issues that concerns corporate level strategy
Term
the degree to which the business in the portfolio are worth more under the mgmt of the company than they would be under any other ownership
Definition
ultimately determines corporate level strategy's value
Term
product diversification
Definition
concerns the scope of the markets and industries in which the firm competes as well as how managers buy, create, and sell different business to match skills and strengths with opportunities to present to the firm
Term
related diversification
Definition
signifies a moderate to high level of diversification for the firm
Term
related constrained strategy
Definition
sharing of resources
Term
related linked strategy
Definition
the transferring of core competencies across the firm's different businesses
Term
the more links among businesses, the more constrained is the relatedness of diversification
Definition
Term
single or dominant busienss corporate level diversification strategy
Definition
a firm pursuing a low level of diversification uses either a
Term
single business diversification strategy
Definition
a corporate level strategy where in the firm generates 95 percent or more of its sales revenue from its core business area
Term
rated constrained or related linked (mexied related and unrelated)
Definition
types of moderate to high levels of diversification
Term
unrelated
Definition
very high levels of diversification
Term
dominant business diversification strategy
Definition
the firm generates between 70 and 95% of its total revenue within a single busienss area
Term
related diversification corporate level strategy
Definition
germinates more than 30% of its revenue outside a dominant business and whose businesses are related to each other in some manner
Term
related constrained diversification strategy
Definition
links between the diversified firm's businesses are rather direct
Term
related linked diversification strategy
Definition
company with a portfolio of businesses that only have a few links between them is called a mixed related and unrelated firm and is using what type of strategy?
Term
related constrained diversification strategy
Definition
when the links between the diversified firm's businesses are rather direct
Term
related linked firms share fewer resources and assets between their businesses, concentrating instead on transferring knowledge and core competencies between the business
Definition
Term
unrelated diversification strategy
Definition
a highly diversified firm that has no relationships between its businesses
Term
conglomerates
Definition
firms using an unrelated diversification strategy are often called
Term
economies of scope, market power, financial economies
Definition
value creating reasons for diversification
Term
diversifying managerial employment risk
increasing managerial compensation
Definition
value reducing reasons for diversification
Term
a desire to match and thereby neutralize a competitor's market power
Definition
value neutral reasons for diversification
Term
increase a firm's size and thus managerial compensation
Definition
motives to diversify a firm to a level that reduces its value
Term
operational relatedness
corporate relatedness
Definition
two ways diversification strategies can create value
Term
vertical sharing of assets through vertical integration
Definition
the firm with a strong capability in managing operational synergy, especially in sharing assets between its businesses
Term
related linked diversification
Definition
highly developed corporate capability for transferring one or more core competencies across businesses
Term
operational relatedness
Definition
sharing actives between business
Term
corporate relatedness
Definition
transferring core competencies into businesses
Term
related diversification strategy
Definition
used to develop and exploit economies of scope between its businesses
Term
economies of scope
Definition
cost savings that the firm creates by successful sharing some of this 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
1. sharing activities (operational relatedness)
2. transferring corporate level core competences (corporate relatedness)
Definition
firms seek to create value from economies of scope thru two basic kinds of operational economies:
Term
corporate level core competencies
Definition
complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise
Term
related linked diversification strategy
Definition
firms seeking to create value thru corporate relatedness use what strategy
Term
the expense of developing a core competence has already been incurred and eliminates the need for that business to allocate resources to develop it

resource intangiblity
Definition
how does the related linked diversification strategy help firms to create value?
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
way of creating market power; exists when two or more diversified firms simultaneously compete in the same product areas or geographic markets
Term
vertical integration
Definition
can be used by a related diversification strategy to gain market power; exists when a company produces its own inputs or owns its own source of output distribution
Term
backward integration
Definition
when a company produces its own inputs
Term
forward integration
Definition
when a company owns its own source of output destruction
Term
virtual integration rather than vertical integration may be a more common source of market power gains for firms today
Definition
Term
firms do NOT seek operational or corporate relatedness when using an unrelated diversification corporate level strategy
Definition
Term
restructuring of acquired assets

efficient internal capital allocations
Definition
two types of financial economies that create value in an unrelated diversification strategy
Term
financial economies
Definition
cost savings realized through improved allocations of financial resources based on investments inside or outside the firm
Term
efficient capital allocations
Definition
reduce risk among the firm's businesses
Term
Europe and emerging markets
Definition
where is the se of unrelated diversification strategy most common
Term
competitors can imitate financial economies more easily than they can replicate the value gained from the economies of scope developed thru operational and corporate relatedness
Definition
"Achilles'" heel for firms using the unrelated diversification strategy
Term
antitrust regulations
tax laws
Definition
external incentives to diversify
Term
low performance
uncertain future cash flows
pursuit of synergy
reduction of frisk for the firm
Definition
internal incentives to diversify
Term
free cash flows
Definition
liquid financial assets for which investments in current businesses are no longer economically viable
Term
diversification may be an important defensive strategy as a firm's product line materials or is threatened
Definition
Term
synergy
Definition
exists when the value created by business units working together exceeds the value that those same units create working independently
Term
reduced managerial risk
the desire for increase compensation
Definition
two motives for managers to diversify their firm beyond value creating and value neutral levels
Term
poison pills
golden parachute agreements
Definition
defensive tactics by managers to avoid takeovers
Term
financial resources (the most flexible) should have a stronger relationship to the extent of of diversification than either tangible or intangible resources
Definition
Term
tangible (the most inflexible) are useful primarily for related diversification
Definition
Term
to create additional value
Definition
what is the primary reason a firms uses a corporate level strategy to become more diversified?
Term
economies of scope
market power
Definition
the main sources of value creation when the firm diversifies by using a corporate level strategy with moderate to high levels of diversification
Term
related diversification corporate level strategy
Definition
helps the firm create value by sharing activities or transferring competencies between different businesses in the company's portfolio
Term
related constrained diversification corporate level strategy
Definition
sharing activities is usually associated with what strategy
Term
costly to implement and coordinate

may create unequal benefits for the divisions involved in the sharing

may lead to fewer managerial risk taking behaviors
Definition
disadvantages of activity sharing
Term
related linked (or mixed related and unrelated) diversification
Definition
transferring core competencies is often associated with what strategy?
Term
efficiently allocating resources or restructuring a target firm's assets and placing them under rigorous financial controls
Definition
two ways to accomplish successful unrelated diversification
Term
financial economies
Definition
firms using the unrelated diversification strategy focus on creating _______ to generate value
Term
incentives from tax and antitrust government policies

performance disappointments

uncertainties about future cash flow
Definition
value neutral reasons that firms may choose to become more diversified
Term
mergers and acquisitions
Definition
a primary means of firm growth
Term
cross border M&A activity
Definition
activity involving firms headquartered in different nations
Term
they can help firms grow rapidly in both domestic and international markets
Definition
a key advantage of mergers and acquisitions
Term
diversification
Definition
allows a firm to create value by productively using excess resources
Term
restructuring strategies
Definition
commonly used to correct or deal with the results of ineffective mergers and acquisitions
Term
merger
Definition
a strategy through which two firms agree to integrate their operations on a relatively coequal basis
Term
acquisition
Definition
a strategy through which one firms buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio
Term
takeover
Definition
a special type of acquisition wherein the target firm does not solicit the acquiring firm's bid; unfriendly acquisitions
Term
1 increased market power
2 overcoming entry barriers
3 cost of new product devleopment/increased speech to market
4 lower risk compared to developing new products
5 increased diversification
6 reshaping the firm's competitive scope
7 learning and developing new capabilities
Definition
reasons for acquisitions
Term
market power
Definition
exists when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or support activities are lower than those of its competitors
Term
horizontal acquisition
Definition
the acquisition of a company competing in the same industry as the acquiring firm
Term
by exploiting cost based and revenue based synergies
Definition
how do horizontal acquisitions increase a firm's market power?
Term
vertical acquisition
Definition
refers to a firm acquiring a supplier or distributor of one or more of its goods or services
Term
related acquisition
Definition
acquiring a firm in a highly related industry
Term
related acquisition
Definition
firms seek to create value through the synergy that can be generated by integrating some of their resources and capabilities
Term
barriers to entry
Definition
factors associated with a market or with the firms currently operating in it that increase the expense and difficulty new firms encounter when trying to enter that particular market
Term
cross border acquisitions
Definition
acquisitions made between companies with headquarters in different countries
Term
acquisition strategies can be used to support use of both unrelated and related diversification strategies
Definition
Term
the more RELATED the acquired firm is to the acquiring firm, the greater the probability the acquisition will be successful
Definition
Term
horizontal
Definition
do horizontal or vertical acquisitions tend to contribute more to the firm's strategic competitiveness?
Term
reshaping the firm's competitive scope
Definition
reason for acquisition that reduces a company's dependence on specific markets
Term
firms should seek to acquire companies with different but related and complementary capabilities in order to build their own knowledge base
Definition
Term
1. integration difficulties
2. inadequate evaluation of target
3. large or extraordinary debt
4. inability to achieve synergy
5. too much diversification
6. managers overly focused on acquisitions
7. too larege
Definition
problems in achieving acquisition success
Term
1. increased market power
2. overcoming entry barriers
3. cost of new product development and increased speed to market
4. lower risk compared to developing new products
5. increased i=diversification
6. reshaping the firm's competitive scope
7. learning and developing new capabilities
Definition
reasons for acquisitions
Term
1. select there eighth target
2. avoid paying too high a premium (doing appropriate due diligence)
3. effectively integrate the operations of the acquiring and target firms
Definition
steps to greater acquisition success
Term
the post-acquisition integration phase
Definition
the single most important determinant of shareholder value creation in mergers and acquisitions
Term
due diligence
Definition
a process through which a potential acquirer evaluates a target firm for acquisition
Term
junk bonds
Definition
a financing option through which risky acquisitions are financed with money (debt) that provides a large potential return to lenders (bondholders)
Term
synergy
Definition
working together; exists when the value created by units working together excess the value those units could create working independently
Term
private synergy
Definition
a firm develops a competitive advantage through an acquisition strategy only when the transaction generates:
Term
private synergy
Definition
created when combining and integrating the acquiring and acquired firms' assets yield capabilities and core competencies that could not be developed by combining and integrating either firm's assets with another company
Term
private synergy
Definition
possible when when firms' assets are complementary in unique ways
Term
transaction costs
Definition
expenses incurred when firms use acquisition strategies to create synergy
Term
related diversification requires more information processing than does unrelated diversification
Definition
Term
bureaucratic controls
Definition
formalized supervisory and behavioral rules and policies designed to ensure consistency of decisions and actions across different units of a firm
Term
acquired firms has assets or resources that are complementary to the acquiring firm's core business, acquisition is friendly, due diligence, has cash or a favorable debt position, merged firm maintains low to moderate debt position, sustained and consistent emphasis on innovation, manages change well, is flexible and adaptable
Definition
attributes of successful acquisitions
Term
restructuring
Definition
a strategy through which a firm changes its set of businesses or its financial structure
Term
downsizing
down scoping
leveraged buyouts
Definition
three types of restructuring strategies
Term
downsizing
Definition
a reduction in the number of a firm's employees and, sometimes, in the number of this uprating units, that may or may not change the composition of businesses in the company's portfolio
Term
downsizing
Definition
an intentional proactive management strategy whereas decline is an environmental phenomenon that occurs involuntarily and results in erosion of an organization's resource base
Term
down scoping
Definition
refers to divestiture, spin off, or some other means of eliminating businesses that are unrelated to a firm's core businesses
Term
down scoping
Definition
has a more positive effect on firm performance than does downsizing
Term
down scoping
Definition
firms focus on their core business and improve their competitiveness
Term
leveraged buyout (LBO)
Definition
a restructuring strategy whereby a party (typically a private equity firm) buys all of a firm's assets in order tot take the firm private
Term
Management buyouts (MOBs)
employee buyouts (EBOs)
whole firm buyouts
Definition
three types of LBO's
Term
reduced labor cots
Definition
short term outcomes of downsizing
Term
loss of human capital and lower performance
Definition
long term outcomes of downsizing
Term
reduced debt costs and emphasis on strategic controls
Definition
short term outcomes of down scoping
Term
higher performance
Definition
long term outcome of down scoping
Term
emphasis on strategic controls and high debt costs
Definition
short term outcomes of leveraged buyout
Term
higher risk and higher performance
Definition
long term outcomes of LBO
Term
globalization and deregualtion of multiple industries
Definition
two of the factors making mergers and acquisitions attractive to large corporations and small firms
Term
1 the difficult of effectively integrating the firms involved
2 incorrectly evaluating the target firm's value
3 creating debt loads that preclude adequate long term investments
4 overestimating the potential for synergy
5 creating a firm that is too diversified
6 creating an internal environment in which managers devote increasing amounts of their time and energy to analyzing and completing the acquisition
7 developing a combined firm that is too large, necessitating extensive use of bureaucratic rather than strategic controls
Definition
problems associated with using an acquisition strategy:
Term
restructuring
Definition
used to improve a firm's performance by correcting for problems created by ineffective management
Term
restructuring by downsizing
Definition
involved reducing the number of employees and hierarchical levels in the firm
Term
restricting through down scoping
Definition
reduce the firm's level of diversification
Term
LBO
Definition
when a firm is purchased so that it can become a private entity
Term
MBOs
Definition
most successful of the three types of LBO's
Term
gaining or reestablishment effective strategic control of the firm
Definition
restructuring's primary goal
Term
international strategy
Definition
a strategy through which the firm sells its goods or services outside its domestic market
Term
international marks yield potential new opportunities
Definition
one of the primary reasons for implementing an international strategy as opposed to a strategy focused on the domestic market
Term
to extend a product's life cycle

secure needed resources
Definition
some reasons why firms pursue international diversification
Term
1. increased market size
2. greater returns on major capital investment or on investments in new products and processes
3. greater economies of scale, scope, or learning
4. competitive advantage through location (eg access to low cost labor, critical resources, or customers)
Definition
four basic benefits from successful international strategies
Term
to generate above average returns on investments
Definition
the primary reason for investing in international markets
Term
business level international strategy
corporate level international strategy
Definition
two basic types of international strategy
Term
multidomestic
global
transnational(combination)
Definition
the three corporate level international strategies
Term
factors of production
Definition
dimension of porter's model that refers to the inputs necessary to compete in any industry
Term
demand conditions
Definition
dimension of porter's model characterized by the nature and size of buyers' needs in the home market for the industyr's goods or services
Term
factors of production
demand conditions
related and supporting industries
firm strategy, structure, and rivalry
Definition
dimension's of porters model "determinants of national advantage"
Term
diamond model
Definition
emphasizes the environmental or structural attributes of a national economy that contribute to a national advantage
Term
international corporate level strategy
Definition
required when the firm operates in multiple industries and multiple countries or regions
Term
international corporate level strategy
Definition
focuses on the scope of a firm's operations through both product and geographic diversification
Term
multidomestic strategy
Definition
an international strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country so as to allow that unit to tailor products to the local market
Term
multidomestic strategy
Definition
focuses on competition within each country
Term
multi domestic strategy uses a highly decentralized approach and do not allow the development of economies of scale
Definition
Term
global strategy
Definition
high need for global integration, low need for local responsiveness
Term
transnational strategy
Definition
high need for global integration, high need for local responsiveness
Term
multidomestic strategy
Definition
low need for global integration, high need for local responsiveness
Term
global strategy
Definition
offers standardized products across country markets, with competitive strategy being dictated by the home offers
Term
transnational strategy
Definition
an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness
Term
flexible coordination
Definition
building a shared vision and individual commitment through an integrated network; necessary for transnational strategy
Term
liability of foreignness
regionalization
Definition
two important environmental trends
Term
exporting products
participating in licensing arrangements
forming strategic alliances
making acquisitions
establishing new wholly owned subsidiaries
Definition
How is international expansion accomplished? (list the ways of market entry)
Term
exporting
Definition
type of entry with high cost and low control
Term
licensing
Definition
type of entry with low cost, low risk, little control, and low returns
Term
strategic alliances
Definition
type of entry with shared costs, shared resources, shared risks, but problems of integration
Term
acquisition
Definition
mode of global market entry with quick access to new market, high cost, complex negotiations, problems of merging with domestic operations
Term
new wholly owned subsidiary
Definition
mode of global market entry that is complex, often costly, ti me consuming, high risk, max control, potential above avg returns
Term
demand conditions
Definition
the nature and size of buyers' needs in the home market for the industry's goods or services
Term
licensing arrangement
Definition
allows a foreign company to purchase the right to manufacture and sell the firm's products within a host country or set of countries
Term
licensing
Definition
the least costly form of international expansion
Term
strategic alliances
Definition
allow firms to share the risks and the resources required to enter international markets
Term
1 the initial condition of the relationship
1 the negotiation process to arrive at an agreement
3 partner interactions
4 external events
Definition
trust between partners in a strategic alliance is based on four fundamental issues:
Term
equity based alliances over which a firm has more control tend to produce more positive returns for strategic alliances
Definition
Term
acquisitions
Definition
provide the fastest and the largest initial international expansion of any of the alternatives
Term
greenfield venture
Definition
the establishment of a new wholly owned subsidiary
Term
creating a greenfield venture (a new wholly owned subsidiary)
Definition
affords maximum control and has the most potential to provide above average returns when entering international markets
Term
export
licensing
strategic alliance
Definition
good tactics for early market development (modes of entry into international markets)
Term
international diversification
Definition
a strategy through whitecap firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets
Term
international diversification and returns
international diversification and innovation
complexity of managing multinational firms
Definition
strategic competitive outcomes
Term
political risks
economic risks
Definition
risks in an international environment:
Term
political risks
Definition
risks related to instability in national governments and to war, both civil and international
Term
the use of international strategies is increasing
Definition
Term
extending the product life cycle
securing key resources
having access to low cost labor
Definition
traditional motives for the use of international strategies:
Term
1. increased market size
2. earning a return on large investments
3. economies of scale/learning
4. advantages of location
Definition
an international strategy is commonly designed primarily to capitalize on four benefits:
Term
factors of production
demand conditions
related and supporting industries
patterns of firm strategy, structure, and rivalry
Definition
porter's model emphasizes four determinants:
Term
multidomestic strategy
Definition
focuses on competition within each country in which the firm competes; decentralized strategic and operating decisions to the business units operating in each country
Term
global strategy
Definition
assumes more standardization of products across country boundaries; centralized and controlled by the home office
Term
transnational strategy
Definition
seeks to integrate characteristics of both multi domestic and global strategies to emphasize both local responsiveness and global integration and coordination
Term
establishment of a new wholly owned subsidiary (greenfield venture)
Definition
the most expensive and risky means of entering a new international market
Term
internal development
mergers and acquisitions
cooperation
Definition
the three means that firms use to grow and improve their performance
Term
cooperative strategy
Definition
a means by which firms work together to achieve a shared objective
Term
strategic alliances
Definition
used more frequently than other types of cooperative relationships
Term
collusive strategy
Definition
another type of cooperative strategy other than strategic alliances
Term
collusive strategy
Definition
when two or more firms cooperate to increase prices above the fully competitive level
Term
strategic alliance
Definition
a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage
Term
collaborative or relational advantage
Definition
a competitive advantage developed through a cooperative strategy
Term
joint venture
equity strategic alliance
non equity strategic alliance
Definition
three major types of strategic alliances, classified by their ownership arrangements
Term
joint venture
Definition
a strategic alliance in which tow or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage
Term
equity strategic alliance
Definition
an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage
Term
non equity strategic alliance
Definition
an alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage
Term
licensing agreements, distribution agreements, supply contracts, outsourcing
Definition
forms of non equity strategic alliances
Term
outsourcing
Definition
the purchase of a value creating primary or support activity from another firm
Term
reduce competition
enhance their competitive capabilities
gain access to resources
take advantage of opportunities
build strategic flexibility
innovate
Definition
reasons firms develop strategic alliances
Term
slow cycle markets
Definition
markets where the firm's competitive advantages are shielded from imitation for relatively long periods of time and where imitation is costs
Term
fast cycle markets
Definition
the firm's competitive advantages are not shielded from imitation, preventing their long term sustainability
Term
standard cycle markets
Definition
when competitive advantages are moderately shielded from imitation, allowing them to be sustained for a longer period of time than fast cycle but shorter than slow cycle
Term
gain access to a restricted market
establish a franchise in anew market
maintain market stability
Definition
reasons for a strategic alliance in slow cycle market
Term
speed up development of new goods
speed up new market entry
maintain market leadership
form an industry technology standard
share risky R&D expenses
overcome uncertainty
Definition
reasons for a strategic alliance in fast cycle market
Term
gain market power
gain access to complementary resources
establish better economies of scale
overcome trade barriers
meet competitive challenges from other competitors
pool resources for very large capital projects
learn new business techniques
Definition
reasons for a strategic alliance in standard cycle market
Term
business level cooperative strategy
Definition
used by a firm to grow and improve its performance in individual product markets
Term
complementary strategic alliances
competition response strategy
uncertainty reducing strategy
competition reducing strategy
Definition
four business level cooperative strategies
Term
vertical and horizontal
Definition
two types of complementary strategic alliances
Term
complementary strategic alliances
Definition
business level alliances in which firms share some of their resources and capabilities in complementary ways to develop competitive advantages
Term
vertical complementary strategic alliance
Definition
firms share their resources and capabilities from different stages of the value chain to create a competitive advantages
Term
horizontal complementary strategic alliance
Definition
an alliance in which firms share some of their resources and capabilities from the same stage of the value chain to create a competitive advantage
Term
strategic alliances are primarily formed to take STRATEGIC rather than TACTICAL actions and response (bc they are difficult to reverse and expensive)
Definition
Term
uncertainty reducing strategy common in fast cycle markets, emerging economies, and where uncertainty exists
Definition
Term
explicit collusion
tacit collusion
Definition
two types of collusive strategies
Term
explicit collusion (illegal)
Definition
when two or more firms negotiate directly with the intention of jointly agreeing about the amount to produce and the price of the products that are produced
Term
collusive strategies
Definition
competition reducing strategy:
Term
tacit collusion
Definition
exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each others competitive actions and responses
Term
tacit collusion tends to be used as a business level competition reducing strategy in highly concentrated industries
Definition
Term
mutual forbearance
Definition
a form of tacit collusion in which firms do not take competitive actions against rivals they meet in multiple markets
Term
complementary business level strategic alliances, especially vertical
Definition
what kind of business level strategic alliances have the greatest probability of creating a sustainable competitive advantage
Term
competition reducing
Definition
of the 4 business level cooperative strategies, which has the lowest probability of creating a sustainable competitive advantage?
Term
corporate level cooperative strategy
Definition
used to help diversify a firm in terms of products offered or markets served or both
Term
diversifying alliances
synergistic alliances
franchising
Definition
most commonly used corporate level cooperative strategies
Term
diversifying and synergistic alliances
Definition
corporate level cooperative strategies that are used to grow and improve performance by diversifying firm's operations through a means other than a merger or an acquisition
Term
diversifying strategic alliance
Definition
a corporate level cooperative strategy in which firms share some of their resources and capabilities to diversify into new product or market areas
Term
synergistic strategic alliance
Definition
a corporate level cooperative strategy in which firms share some of their resources and capabilities to create economies of scope
Term
franchising
Definition
a corporate level cooperative strategy in which a firm uses a franchise as a contractual relationship to describe and control the sharing of its resources and capabilities with partners (the franchisees)
Term
franchise
Definition
a contractual agreement between two legally independent companies whereby the franchiser grants the right to the franchisee to sell the franchiser's product or do busienss under its trademarks in a given location for a specified period of time
Term
cross border strategic alliance
Definition
an international cooperative strategy in which firms with headquarters in different nations decide to combine some of their resources and capabilities to create a competitive advantage
Term
network cooperative strategy
Definition
a cooperative strategy wherein several firms agree to from multiple partnerships to achieve shared objectives
Term
important advantage of a network cooperative strategy: firms gain access to their partners' other partners
Definition
Term
alliance network
Definition
the set of strategic alliance partnerships resulting from the use of a network cooperative strategy is commonly called:
Term
stable alliance network
Definition
formed in mature industries where demand is relatively constant and predictable
Term
stable alliance networks are built primarily to exploit the economies that exist between the partners
Definition
Term
dynamic alliance networks
Definition
used in industries characterized by frequent product innovations and short product life cycles (type of alliance network in a network cooperative strategy)
Term
inadequate contracts
misrepresentation of competencies
partners fail to use their complementary resources
holding alliance partner's specific investment hostage
Definition
prominent cooperative strategy competitive risks
Term
cost minimization and opportunity maximization
Definition
two primary approaches used to manage cooperative strategies
Term
cost minimization mgmt approach
Definition
the firm develops formal contracts with its partners that specify how the cooperative strategy is to be monitored
Term
opportunity maximization
Definition
focuses on maximizing a partnership's value creation opportunities with less formal contracts and few constraints
Term
cooperative strategy
Definition
strategy such that firms work together to achieve as shared objective
Term
strategic alliances
Definition
primary form of cooperative strategy
Term
strategic alliances
Definition
where firms combine some of their resources and capabilities to create a competitive advantage
Term
joint ventures
Definition
where firms create and own equal shares of a new venture that is intended to develop competitive advantages
Term
equity strategic alliances
Definition
where firms own different shares of a newly created venture
Term
non equity strategic alliance
Definition
where firms cooperate through a contractual relationship
Term
tacit collusion aka mutual forbearance
Definition
cooperative strategy through which firms tacitly cooperate to reduce industry output below the potential competitive output level, thereby raising prices above the competitive level
Term
to enter restricted markets
Definition
reasons firms use cooperative strategy in a slow cycle market
Term
to move quickly from one competitive advantage to another
Definition
reasons firms use cooperative strategy in a fast cycle market
Term
to gain market power
Definition
reasons firms use cooperative strategy in a standard cycle market
Term
complementary alliances
Definition
have the highest probability of yielding a sustainable competitive advantage
Term
firms use corporate level cooperative strategies to engage in product and/or geographic diversification
Definition
Term
corporate governance
Definition
a relationship among stakeholders that is used to determine a firm's direction and control its performance
Term
1. ownership concentration
2. the board of directors
3. executive compensation
Definition
three internal governance mechanisms in the modern corporation:
Term
the market for corporate control
Definition
the single external governance mechanism influencing managers' decisions and the outcomes resulting from them
Term
ownership concentration
Definition
based on the number of large bock shareholders and the percentage of shares they own
Term
diffuse ownership
Definition
tends to result in relatively weak monitoring and control of managerial decisions
Term
corporate governance
Definition
the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations
Term
to ensure that the interest of top level managers are aligned with the interests of the shareholders
Definition
primary objective of corporate governance
Term
1. ownership concentration
2. the board of directors
3. executive compensation
4. external - market for corporate control
Definition
the three internal governance mechanisms and the one external one that are used in the modern corporation
Term
market for corporate control
Definition
a set of potential owners seeking to acquire undervalued firms and earn above avg returns on their investments by replacing ineffective top level mgmt teams
Term
shareholders specialize in managing their investment risk
Definition
Term
firms in which families own enough equity to have influence without major control tend to make the best strategic decisions
Definition
Term
agency relationships
Definition
exists when one or more persons (the principal) hire another person (the agent) as decision making specialists to perform a service
Term
agency relationship
Definition
exists when one party delegates decision making responsibility to a second party for compensation
Term
firm's owners/SH = principal
top level managers = principals' agents
Definition
Term
managerial opportunism
Definition
the seeking of self interest with guile (cunning or deceit)
Term
managers may prefer product diversification more than shareholders do
Definition
Term
1. diversification increases the size of a firm, which is positively related to executive compensation and diversification increases the complexity of managing a firm, requiring more pay
2. diversification can reduce managers' employment risk
Definition
what are the benefits of product diversification to managers?
Term
free cash flows
Definition
resources remaining after the firm has invested in all projects that have positive net present value within its current businesses
Term
a position located between the dominant business and related constrained diversification strategies
Definition
of the four corporate level diversification strategies, which will shareholders likely prefer?
Term
mangers prefer higher levels of product diversification than do shareholders (between related linked and unrelated businesses)
Definition
Term
SH
Definition
who (managers or SH) prefer riskier strategies and more focused diversification?
Term
agency costs
Definition
the sum of the incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals bc governance mechanisms cannot guarantee total compliance by the agent
Term
ownership concentration
Definition
both the number of large block shareholders and the total percentage of shares they own
Term
large block shareholders
Definition
typically own at least 5% of a corporation's issued shares
Term
diffuse ownership
Definition
a large number of SH with small holdings and few, if any, large block SH
Term
ownership concentration is associated with lower levels of firm product diversification
Definition
Term
separation of ownership and control
Definition
how is the modern corporation characterized
Term
institutional owners
Definition
the financial institutions such as stock mutual funds and pension funds that control large block shareholder positions
Term
board of directors
Definition
group of elected individuals whose primary responsibility is to act in the owners' best interests by formally monitoring and controlling the corporation's top level managers
Term
insiders
related outsiders
outsiders
Definition
three groups of board members
Term
insiders
Definition
active top level managers in the corporation who are elected to the board because they are a source of information about the firm's day to day operations
Term
related outsiders
Definition
have some relationship with the firm, contractual or otherwise, that may create questions about their independence, but are not inovled with the corporation's day to day activities
Term
outsiders
Definition
provide independent counsel to the firm and may hold top level managerial positions in other companies or may have been elected to the board prior to the beginning of the current CEO's tenure
Term
outsider dominated boards may emphasize the use of financial as opposed to strategic controls to gather performance information to evaluate mangers' and business units' performances
Definition
Term
executive compensation
Definition
a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long term incentive compensation, such as stock awards and options
Term
market for corporate control
Definition
an external governance mechanism that becomes active when a firm's internal controls fail
Term
hostile takeovers
Definition
the major activity in the market for corporate control governance mechanism
Term
golden parachutes
Definition
a CEO can receive up to 3 years salary if the firm is taken over
Term
poison pill
Definition
takeover defense mechanism that allows shareholders other than the acquirer to convert shareholders' rights into a large number of common shares if anyone acquires more than a set amount of the target's stock (10-20%)
Term
greenmail tactic
Definition
defense mechanism wherein money is used to repurchase stock from a corporate raider to avoid the takeover of the firm
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