BUSN 489- Exam 2 2023 with verified questions and answers

2 levels of strategic decisions corporate-level decisions business- Level decisions 3 parts to corporate- level decision corporate strategies organizational structure and control resource allocation 4 parts to business- level decision business strategies resource deployment strategic & tactical moves timing: first mover, second mover, & late mover Rumelt's Four Criteria for Evaluating Strategies Internal consistency external consonance practical feasibility competitive advantage results expected from pursuing certain strategies and drawn from mission long- term objective long term objective time frame 2-5 years long term objections are stated in terms of .... growth profitability market share social responsibility etc. coordinated activités to exploit core competencies and gain compétitive advantage in specific product markets business strategies 3 parts to business strategy formulation want can need business strategy formulation- WANT INDIVIDUAL: management preferences business strategy formulation- CAN FIRM: resources capabilities and core competencies business strategy formulation- NEED INDUSTRY: Environment customer needs and market segmentation 3 parts of PEST and Risks of business strategies Cost leadership differentiation focus Efficient processes vs. Technological changes in processes cost leadership Standard products vs. Broader socio-economic or socio-technological changes Cost leadership Meaningfulness of uniqueness vs. Broader socio-economic or socio-technological changes differentiation Niche preference vs. vs. Broader socio-economic or socio-technological changes focus corporate strategies vertical intégration and diversification corporate strategies- fundamental logic whole Sum of its parts corporation business unit 1 + business unit 2 + business unit 3 + ... Business unit n corporate strategies: 5 corporate-level strategic issues Business scale & scope (i.e., horizontal, vertical integration) Business portfolio (i.e., diversification) Resource allocation, transferring skills & sharing activities Corporate restructuring Alliances and international expansion Business Scale & Scope Horizontal integration (scale) Vertical integration (scope) forward integration backward integration vertical integration (scope) gaining ownership/ control over competitors horizontal integration (scale) gaining ownership/ control over distributors/ retailers forward integration gaining ownership/ control over suppliers backward integration 5 Vertical Integration: Incentives Quality control Protect technology Transaction cost savings Information access Bargaining power over suppliers and/or distributors 4 Vertical Integration: Disincentives Bureaucratic costs Reduces flexibility Potential over-capacity Attractiveness of supplier & distributor markets, and other alternatives (contracting, strategic alliances) 4 types of diversification Single Business Concentration Dominant Business Related Diversification Unrelated Diversification level of Single Business Concentration- diversification 95% of revenues level of dominant business - diversification 70-95% of revenues level of Related Diversification -diversification 70% of revenues Related-Constrained Diversification: all businesses linked Related-Linked Diversification some businesses linked level of Unrelated Diversification 70% of revenues, no business linked Single and dominant business PROS- 3 Clearly focused vision and mission Specialized knowledge & experienced hands-on managers Resources focused on core competencies Single and dominant business CONS- 3 Putting all the "eggs" in one basket If market becomes unattractive, a firm's prospects can quickly dim Changes in the market can undermine a single business firm's prospects three validity tests of diversification 1. attractiveness test 2. Cost of Entry Test 3. better-off test Related Diversification: 2 Value-Creating Mechanisms Economies of scope Market power (power over competitors) Sharing activities (i.e., operational relatedness) Transferring core competencies (i.e., corporate relatedness) economies of scope vertical integration multipoint competition Market power (power over competitors) Related Diversification: 4 Strategic Fits technology fits operating fits distribution and customer- related fits managerial fits Unrelated Diversification: 2 Value-Creating Mechanisms Efficient internal capital market allocation Acquiring, restructuring and/or reselling Corporate headquarter = Internal capital market Efficient internal capital market allocation Top management = Portfolio manager Resource allocation: From slow-growth business units to high-growth business units Efficient internal capital market allocation 3 Vehicles to Corporate Strategy & Cooperative Dimension of Strategy internal development alliance merger and acquisition 4 benefits for Internal development Incremental Commitment Compatible with Overall Corporate Culture Encourage Entrepreneurship Internal Investment 5 drawbacks for Internal development Slow Process Need to Build New Resources Adds to Industry Capacity Subscale Entry Difficult to recoup if unsuccessful 4 benefits of Alliance Access to Complementary Resources & Create Synergy Speed to new business/market Reduce Competition Reduce Uncertainty 5 drawbacks of Alliance Lack of Control Assist Potential Competitor Questionable Long-Term Viability Difficult to Integrate Learning Who Will Lead and set Strategy? 7 benefits of Merger & Acquisition Overcome Barriers to Entry Speed Lower Development Risk Acquire Management expertise Access Complementary Resources Remove Competitor Upgrade Corporate Resources 7 drawbacks of Merger and Acquisition High Cost of Expansion/ over-leveraged Integration Problems Major Commitment Overestimated Synergy or Underestimated redundancies Substitute for Innovation Dilute Managerial Focus 5 parts to portfolio analysis Boston Consulting Group (BCG) Growth-Share Business Portfolio Matrix: GE/McKinsey Industry Attractiveness-Business Strength Matrix: Growth Strategies Defensive Strategies Restructuring 2 growth strategies intensive strategies integration strategies Market penetration (i.e., existing products/services, present markets) Market development (i.e., existing products/services, new markets) Product development (i.e., improve or modify existing products/services, or develop new ones) Intensive Strategies: Vertical integration (backward and/or forward) Horizontal integration Integration Strategies 3 defensive strategies Retrenchment Divestiture Liquidation Cost/asset reduction & fortifying efforts retrenchment Selling off a division/business unit to raise capital Spin-off Divestiture selling off a company's assets to get cash back liquidation 5 Internal expansion rationales Potential new opportunities oversea Needed resources Greater potential product demand Extending product life cycle Opportunities to integrate operations on a global scale 3 benefits of international expansion Increased market size Economies of scale and learning Location advantages 3 Risks & problems in international contexts- international expansion Political risks Economic risks Management difficulties Political risks political instability, war, etc Economic risks currency fluctuation, local economic challenges, etc. Management Difficulties cross-country coordination, cultural barriers, competitive global markets, etc.