Strategic Management Textbook

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competitive advantage
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a firm that achieves superior performance relative to other competitors in the same industry or the industry average
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sustainable competitive advantage
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A firm that is able to outperform its competitors or the industry average over a prolonged period of time has a ________
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competitive parity
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performance of two or more firms at the same level
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tradeoffs
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strategic positioning requires _________
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industry effects
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describe the underlying economic structure of the industry
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firm effects
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attribute firm performance to the actions managers take
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black swan events
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incidents that describe highly improbably but high impact events
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stakeholders
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organizations groups and individuals that can affect or be affected by a firm’s actions
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stakeholder strategy
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An integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage; Allows firms to analyze and manage how various external and internal stakeholders interact to jointly create and trade value
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power, legitimacy, urgency
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3 attributes of stakeholders
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corporate social responsibility (CSR)
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a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a give point in time
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analyze, formulate, implement
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AFI
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AFI framework
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A model that links three interdependent strategic management tasks—analyze, formulate, and implement—that together help managers plan and implement a strategy that can improve performance and result in competitive advantage
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define firm’s vision, mission, and values
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first step to obtaining an effective strategy process
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product-oriented
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a ________ vision defines a business in terms of a good or service
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customer-oriented
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a ________ vision defines a business in terms of providing solutions to customer needs
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organizational values
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ethical standards and norms that govern the behavior of individuals within a firm or organization
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strategic leadership
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the behaviors and styles of executives that influence others to achieve the organization’s vision and mission
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face to face
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most effective way of management
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upper echelons theory
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a conceptual framework that views organizations outcomes strategic choices and performance levels as reflections of the values of the members of the top management team
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(1) highly capable individual (2) contributing team member (3) competent manager (4) effective leader (5) executive
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level 5 leadership pyramid levels
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upper-echelons theory
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according to the ________, it is the top management team that primarily determines whether a firm is able to gain and sustain a competitive advantage through the strategies they pursue
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corporate strategy
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__________ concerns questions relating to where to compete (industry, markets, and geography)
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business strategy
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____________ concerns the question of how to compete (cost leadership, differentiation, or integration)
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functional strategy
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__________ concerns the question of how to implement business strategy
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strategic business unit
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a standalone division of a larger conglomerate with its own profit and loss responsibility
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top down strategic planning
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rational top town process through which executives attempt to program future success
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scenario planning
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strategy planning activity in which managers envision different what if scenarios to anticipate plausible futures
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core competencies
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unique strengths embedded deep within a firm
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resources
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any assets such as cash, buildings, machinery or intellectual property that a company can draw on when crafting and executing a strategy
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capabilities
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the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically
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activities
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distinct and fine-grained business processes such as order taking, the physical delivery of products or invoicing customers
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resource-based view (RBV)
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provides a model that systematically aids in identifying core competencies Tangible resources have physical attributes and are visible (labor, capital, land, buildings, plant, equipment, and supplies)
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resource heterogeneity
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bundles of resources, capabilities and competencies differ across firms
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resource immobility
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resources tend to be “sticky” and don’t move easily from firm to firm. Because that stickiness, the resource differences that exist between firms are difficult to replicate and therefore can last for a long time
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VRIO framework
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a way to evaluate a firm’s resource endowments and answer the question of what resource attributes underpin competitive advantage
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valuable, rare, costly to imitate, organized to capture value
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VRIO
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valuable
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a resource is _______ if it helps a firm increase the perceived value its product or service in the eyes of the consumer either by adding attractive features or by lowering price because the resource helps the firm lower its costs
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rare
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a resource is ________ if only one or a few firms possess it. If the resource is common it will result in perfect competition where no firm is able to maintain a competitive advantage
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costly to imitate
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if firms that do not have the resource are unable to develop or buy the resource at a reasonable price
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organized to capture value
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having in place an effective organizational structure, process and systems to fully exploit the competitive potential of the firm’s resources, capabilities, and competencies
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luck, path dependence, casual ambiguity, social complexity
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4 conditions that protect competitive advantage to make it more difficult for competitors to imitate the resources, capabilities, or competencies that underlie its competitive advantage
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path dependence
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describes a process in which the options one faces in a current situation are limited by decisions made in the past
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casual ambiguity
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describes a situation in which the cause and effect of a phenomenon are not readily apparent
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social complexity
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describes situations in which different social and business systems interact with one another
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dynamic capabilities perspective
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a model that emphasizes a firm’s ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment
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dynamic capabilities
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describe a firm’s ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage
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resource stocks
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firm’s current level or intangible resources
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resource flows
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the firm’s level of investment to maintain or build a resource
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value chain analysis
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descries the internal activities a firm engages in when transforming inputs into outputs. Each activity the firm performance along the horizontal chain adds incremental value—raw materials and other inputs are transformed into components that are finally assembled into finished products or services from the end consumer.
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activities
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distinct actions that enable firms to add incremental value at each step by transforming input into goods and services (I.e. managing a supply chain, running the company’s IT system)
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SWOT analysis
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allows managers to synthesize insights obtained form an internal analyses of the company’s strengths and weaknesses (S and W) and those from an analysis of external opportunities and threats (O and T)
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strengths, weaknesses, opportunities, threats
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SWOT
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(1) accounting data (2) shareholder value (3) economic value
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3 components in assessing competitive advantage
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accounting data
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enable us to conduct direct performance comparisons between different companies. Some of the profitability ratios most commonly used are
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shareholders
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individuals or organizations that own one or more shares of stock in a public company and are the legal owners of public companies
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economic value created (EVC)
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the difference between a buyers willingness to pay for a product or service and the firm’s total cost to produce it
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willingness to pay (WTP)
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Amount of total perceived consumer benefits equals the maximum ___________
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value
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the dollar amount V a consumer would attach to a good or service the consumer’s maximum willingness to pay sometimes also called reservation price
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consumer surplus
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the difference between the value a consumer attaches to a good or service and what he or she paid for P or V-P
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balanced scorecard strategy
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strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals
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triple bottom line
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combination of economic, social, and economical concerns that can lead to a sustainable strategy
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corporate social responsibility
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helps firms recognize and address society’s expectations of the business enterprise at a given time
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business model
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organizational plan that details the firm’s competitive tactics and initiatives in short how the firm intends to make money
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business level strategy
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details the goal directed actions managers take in their quest for competitive advantage when competing in a single product market
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V-C
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EVC = ?
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product features, customer service, complements
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3 value drivers
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cost of input factors, economies of scale, learning curve effects, experience curve effects
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4 cost drivers
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integration strategy
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requires that tradeoffs between differentiation and low cost are reconciled
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positioning
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Productivity frontier which is the value cost relationship that captures the result of performing best practices at any given time
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PESTEL framework
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a framework that categorizes and analyzes an important set of external forces (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats for the firm
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political, legal environment, economic, sociocultural, technological, ecological
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PESTEL
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five forces model
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a framework developed by Michael Porter that identifies five forces that determine the profit potential of an industry and shape a firm’s competitive strategy
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industry
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a group of companies that more or less the same set of suppliers and buyers
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industry analysis
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a method to identify an industry’s profit potential and derive implications for a firm’s strategic position within an industry
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strategic position
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relates to its ability to create value for customers while containing the cost to do so.
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stronger, lower
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the ________ the 5 forces the _______ the industry’s profit potential making the industry less attractive for potential competitors
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threat of entry, power of suppliers, power of buyers, threat of substitutes, rivalry among existing competitors
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5 forces
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threat of entry
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the risk that potential competitors will enter an industry
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entry barriers
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obstacles that determine how easily a firm can enter an industry. Entry barriers are often one of the most significant predictors of industry profit potential
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strategy formulation
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centers around the key questions of where and how to compete. Business strategy concerns the question of how to compete in a single product market
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corporate strategy
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the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industrial and markets simultaneously addresses where to compete along three dimensions
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(1) products and services (2) industry value chain (3) geography
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3 dimensions along which firms compete
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principal agent problem
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a situation in which an agent performing activities on behalf of a principal pursues his or her own interests
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short term contracts, strategic alliances, long term contracts
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3 alternatives to make or buy
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vertical integration
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the firm’s ownership of its production of needed inputs or of the channels by which it distributes its outputs
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industry value chain
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depiction of the transformation of raw materials into finished goods and services along distinct vertical stages each of which typically represents a distinct industry in which a number of different firms are competing
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backward
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changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain
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forward
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changes in an industry value chain that involve moving ownership of activities closer to the end point of the value chain
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increasing costs, reducing quality, reducing flexibility, increasing legal repurcussions
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4 drawbacks to vertical integration
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strategic outsourcing
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involved moving one or more internal value chain activities outside the firm’s boundaries to other firms in the industry value chain
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merger
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the joining of two independent companies to form a combined entity
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acquisition
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the purchase or takeover of one company by another
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vertical integration
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concerns the number of activities a firm participates in up and down the industry value chain
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horizontal integration
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the process of merging with a competitor at the same stage of the industry value chain
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reduction in competitive intensity, lower costs, increased differentiation
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3 benefits to horizontal integration
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access to new markets, access to new capability, preempt rivals
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3 reasons to integrate
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managerial hubris
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a form of self delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary
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strategic alliances
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voluntary arrangements between firms that involve the sharing of knowledge resources and capabilities with the intent of developing processes products or services
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relational view of competitive advantage
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strategic management framework that proposes that critical resources and capability frequent are embedded in strategic alliances that span firm boundaries
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shared value creation framework
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provides guidance to managers about how to reconcile the economic imperative of gaining and sustaining competitive advantage with corporate social responsibility
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corporate governance
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concerns the mechanisms to direct and control and enterprise in order to ensure that it pursues its strategic goals successfully and legal
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agency theory
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a theory that views the firm as a nexus of legal contracts
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board of directors
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the centerpiece of corporate governance in such companies
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competition
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a process driven by the perennial gale of creative destruction in the words of a famed economist Joseph Schumpter
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introduction, growth, shakeout, maturity, decline
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industry life cycle
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network effects
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the positive effect (externality) that one user of a product or service as of that product for other users
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technology enthusiasts/early adopters, chasm, early majority, late majority, laggards
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types of consumers
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incremental v. radical, architectural v. disruptive
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types of innovation
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incremental
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an innovation that squarely builds on an established knowledge base and a steadily improves an existing product or service offering targets existing markets by using existing technology
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radical
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an innovation that draws on novel methods or materials is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge or targets new markets by using new technologies
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architectural
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Innovate by existing technologies into new markets—doing so generally requires them to reconfigure the components of a technologies are reconfigured in a novel way to create new markets
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disruptive
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innovation leverages new technologies to attack existing markets. It invades an existing market from the bottom up
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globalization
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process of closer integration and exchange between different countries and peoples worldwide—made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs
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multinational enterprises (MNEs)
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a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries
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larger markets, low-cost inputs, new competencies
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3 advantages to expanding internationally
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liability of foreignness, loss of reputation, loss of intellectual property
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3 disadvantages to expanding internationally
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CAGE
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a decision framework based on the relative distance between home and foreign target country along four dimensions: culture, administrative (government), geographic, and economic distances
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cost reductions, local responsiveness
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MNEs face two opposing forces when competing around the globe: ______ and ______
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globalization hypothesis
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consumer needs and preferences throughout the world are converging and this becoming increasingly homogenous
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international, multi-domestic, global-standardization, transnational
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4 strategies to expanding internationally
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international
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essentially a strategy in which a company sells the same products or services in both domestic and foreign markets
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multi-domestic
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attempt to maximize local responsiveness, hoping that local consumers will perceive them to be domestic companies
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global-standardization
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attempt to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best of class capabilities reside at the lowest cost
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transnational
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attempt to combine the benefits of localization strategy (high LR) with those of a global-standardization strategy
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death of distance hypothesis
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assumption that geographic location alone should not lead to a firm-level competitive advantage because firms are now more than ever able to source inputs globally
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porter’s diamond framework
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Factor conditions describe a country’s endowments in terms of natural, human, and other resources
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strategic implementation
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final piece of AFI framework that concerns the organization, coordination and integration of how work gets done. It is key to gaining and sustaining competitive advantage.
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organizational design
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process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization
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specialization, formalization, centralization, hierarchy
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4 key components of organizational design
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organic
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________ organizations have a low degree of specialization and formalization—a flat organizational structure and decentralized decision making
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mechanistic
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___________ organizations are characterized by a high degree of specialization and formalization and a tall hierarchy that relies on centralized decision making
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simple, functional, multidivisional (M form), matrix
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4 types of structure
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simple
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structure that generally small firms where the founders tend to make all the important strategic decision as well as run the day-to-day operations
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functional
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structure groups employees into distinct functional areas based on domain expertise
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mechanistic, centralized
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cost leadership is ___ and ___ regarding structure
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organic
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differentiation is _____ regarding structrue
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the middle
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integration is ______ regarding structure
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M form
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consists of several distinct strategic business units each with its own profit-and-loss (P&L) responsibility
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matrix
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organization structure that combines the functional structure with the m-form
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organizational culture
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describes the collectively shared values and norms of an organization
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input controls mechanism
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strategic control and reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered prior to the value creating activities
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output controls mechanism
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a strategic control and reward system that seek to guide employee behavior by defining expected results (outputs) but leave the means to those results open to individual employees groups and SBUs

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