Chapter 6: Corporate Level Strategy – Flashcards

Focuses on gaining long-term revenue, profits and market value through managing operations in multiple businesses.

The process of firms expanding their operations by entering new businesses. i.e. Intuit entering mobile payments?

Firm entering a business in which it can benefit from leveraging core competencies, sharing activities, or building market power. i.e. Intuit buying Mint.com when it already owns Quickbooks/Quicken/Turbotax etc.

Cost savings from leveraging core competencies or sharing related activities among businesses in a corporation.

Firm's strategic resources that reflect the collective learning in the organization.

1. Core competence must create superior customer value. 2. Different businesses in the corporation must be similar in at least one important way. 3. Core competencies must be difficult for competitors to imitate.

Having activities of two or more businesses value chains done by one of the businesses. i.e. sharing manufacturing facilities, sales forces, etc.

1. Cost savings 2. Revenue/Differentiation

Elimination of jobs, lower overhead costs by sharing facilities, economies of scale, etc.

Just make a better product.

Firms abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

Government regulation

The improvement in bargaining position relative to suppliers and customers. i.e. Pepsi Co owning KFC, Taco Bell and Pizza Hut

An expansion or extension of the firm by integrating preceding or successive production processes.

1. A secure source of raw materials 2. Protection of and control over valuable assets 3. Access to new business opportunities 4. Simplified procurement and administrative procedures

1. Costs and expenses associated with increased overhead. 2. Loss of flexibility resulting from large investments (less cash) 3. Problems associated with unbalanced capacities along the value chain. 4. Additional administrative costs for managing a more complex set of activities.

1. Perspective that the choice of a transaction's governance structure is influenced by transaction costs, including search, negotiating, contracting, monitoring, and enforcement costs. How expensive is it to get the sh*t

Sum of: 1. Search costs 2. Negotiation costs 3. Contracting costs 4. Monitoring costs 5. Enforcement costs

Firm entering a different business that has little horizontal interaction with other businesses firms. i.e. Google buying a car company

The positive contributions of the corporate office to new business as a result of expertise and support provided and not as a result of substantial change in asset, capital structure or management. i.e. Good advising

The intervention of the corporate office in a new business that substantially changes the assets, capital structure, and or management by selling part of the business, changing the management, reducing payroll or more.

Involves the sale of unproductive assets

Involves changing the debt-equity mix.

Changes to top management team and organizational structure

Method of: 1. Assessing the competitive position of a portfolio of businesses within a corporation. 2. Suggesting strategic alternatives for each business 3. Identifying priorities of the allocation of resources across the business

1. The corporation is in a better position to allocate resources to businesses according to explicit criteria 2. The corporate office can provide guidance on what firms may be attractive acquisitions 3. The corporate office can provide financial resources 4. The corporate office can provide high quality review and coaching 5. It provides a basis for developing strategic goals and rewards

1. They are overly simplistic consisting of only two dimensions (growth and market share) 2. They view each business as separate ignoring synergies 3. Process may be overly mechanical 4. Reliance on strict rules for resource allocation across small business units can be detrimental to long-term viability

Small business units in high growth industries with relatively high market shares. i.e. None of Intuit

Competing in high growth industry but having weak market shares. i.e. Demandforce

Competing with high market shares in low-growth industries i.e. Quickbooks, Turbotax

Weak market shares in low-growth industries. i.e. Quickbase

Incorporation of one firm into another through purchase

The combining of two or more firms into one new legal entity

1. Obtain valuable resources that can help an organization expand its product offerings. 2. Provide opportunity for firms to attain three bases of synergy: leveraging core competencies, sharing activities, and building market power. 3. Lead to consolidation within an industry and force other players to merge. 4. Enter new market segments

1. Takeover premiums paid for acquisitions are typically very high. 2. Competing firms often can imitate any advantages or copy synergies that are gained from the merger or acquisition 3. Managers egos sometimes get in the way of sound business decisions 4. Cultural issues

The exit of a business from a firm's portfolio i.e. Current divestment of Quickbase and Demandforce

A cooperative relationship between two or more firms.

New entities formed within a strategic alliance in which two or more firms, the parents, contribute equity to create a new legal entity.

Entering a new business through investment in new facilities, often called corporate enterpreneurship and new venture development.

Managers acting in their own self-interest instead of maximizing long-term shareholder value. i.e. Whitman of Ebay's goals to only increase earnings despite alienating Ebay with increased fees.

Managers actions to grow the size of their firms not to increase long term profitability

Managers actions to shape their firms strategies to serve their selfish interests rather than to maximize long-term shareholder value.

Managers actions to avoid losing wealth or power as a resort of a hostile takeover

A payment by a firm to a hostile party for the firm's stock at a premium, made when the firm's management feels that the hostile party is about to make a tender offer.

Prearranged contract with managers specifying that, in the event of a hostile takeover, the target firm's managers will be paid a significant severance package.

Used by a company to give shareholders certain rights in the event of a takeover by another firm.