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Capstone Exam 3 Chapter 9
Terms in this set (40)
• Which corporate strategy does Disney pursue?
o Disney entered strategic alliances and acquired other media businesses to create theme-based franchises
Ex: entering an alliance with Pixar (a computer hardware company producing high end graphic display systems
What three options do corporate executives have at their disposal to drive firm growth?
o Organic growth through internal development
o External growth through alliances
o External growth through acquisitions
• What is the build-borrow-buy framework? What is the strategic resource gap and why is it the starting point in the build-borrow-buy framework?
o Build-borrow-buy framework: conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow) or acquire new resources, capabilities and competencies (buy)
• Relating to the build-borrow-buy framework, which 4 sequential questions enable an organization to determine the best course of action to close the strategic resource gap? (Hint, questions relate to relevancy, tradability, closeness, and integration).
o Relevancy: How relevant are the firms existing internal resources to solving the resource gap
o Tradability: how tradable are the targeted resources that may be available externally
o Closeness: how close do you need to be to your external resource partner
o Integration: how well can you integrate the targeted firm, should you determine you need to acquire the resource partner
• Using which two ways do evaluate the relevance of internal resources? Under what conditions are the firm's internal resources sufficiently relevant to pursue internal development?
o 1) similar to those the firm needs to develop
o 2)superior to those of competitors in the targeted area
o If BOTH conditions are met, then the firms internal resources are relevant and the firm should pursue internal development
• What does the term tradable imply? What are examples of ways to "borrow" resources from other companies?
o The term tradable implies that the firm is able to source the resource externally though a contract that allows for the transfer of ownership or use of the resource
o Licensing or franchising are a way to borrow resources
• Why would it sometimes be preferable to obtain resources through strategic alliances, rather than outright acquisition?
o Mergers and acquisitions are too costly, complex, and difficult to reserve strategic option
• What is a strategic alliance? Are they rare or common? Why are strategic alliances attractive in comparison to "going it alone"?•
o Strategic alliance: a voluntary agreement between firms that involves the sharing of knowledge, resources, and capabilities, with the intent of developing processes, products, or services
o The use of strategic alliances to implement corporate strategy has exploded in the past few decades, with thousands forming each year
o Strategic alliances are attractive because they enable firms to achieve goals faster and at a lower cost than going it alone
• When does an alliance qualify as strategic?
o Only if it has the potential to affect a firm's competitive advantage
• What is the relational view of competitive advantage?
o Strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries
• What percentage of Fortune 1000 CEOs indicated more than one-quarter of their firm's revenues were derived from strategic alliances?
• What are five common reasons firms enter strategic alliances?
o Strengthen competitive position, Enter new markets, hedge against uncertainty, access critical complementary assets, and learn new capabilities
• Why did IBM and Apple form and alliance? How do both benefit?
o IBM and Apple entered a strategic alliance to strengthen their respective competitive position in mobile computing and business productivity apps. This in turn increased the competitive pressure on rivals of both companies, in particular, Microsoft.
• Relating to hedging against uncertainty, what is a real-options perspective?
o Approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.
• Relating to learning new capabilities, what is co-opetition? Learning races? Why did Toyota enter into the NUMMI joint venture with GM?
o Co-opetition- Cooperation by competitors to achieve a strategic objective.
o Learning races- Situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary.
o Toyota entered the alliance to learn how to implement its lean manufacturing program with an American work force. This was seen as a learning race between Toyota and GM. Toyota was seen as the "winner" since it was faster in accomplishing its alliance goal.
• With which three mechanisms can alliances be governed?
o Non-equity alliances, equity alliances, and joint ventures.
• What is a non-equity alliance? What are the most frequent forms of non-equity alliances?
o Non-equity alliance- Partnership based on contracts between firms.
o The most frequent forms of non-equity alliances are supply agreements, distribution agreements, and licensing agreements.
• What is explicit knowledge?
o Knowledge that can be codified; concerns knowing about a process or product
• What is a licensing agreement?
o Licensing agreements are contractual alliances in which the participants regularly exchange codified knowledge.
• What are the pros and cons of a non-equity alliance?
o Because of their contractual nature, non-equity alliances are flexible and easy to initiate and terminate. However, because they can be temporary in nature, they also sometimes produce weak ties between the alliance partners, which can result in a lack of trust and commitment.
What is an equity alliance?
o Partnership in which at least one partner takes partial ownership in the other
• What is tacit knowledge?
o Knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task
• What is corporate venture capital (CRC)?
o Equity investments by established firms in entrepreneurial venture. It falls under a broader category of equity alliances.
• What are the pros and cons of an equity alliance?
o PROS- equity alliances tend to produce stronger ties and greater trust between partners than non-equity alliances do. Equity alliances are frequently stepping-stones toward full integration of the partner firms either through a merger or an acquisition. Essentially, they are often used as a "try before you buy" strategic option.
o CONS- The downside of equity alliances is the amount of investment that can be involved, as well as a possible lack of flexibility and speed in putting together and reaping benefits from the partnership.
• What is a joint venture?
o a standalone organization created and jointly owned by two or more parent companies.
o PROS- The advantages of joint ventures are the strong ties, trust, and commitment that can result between the partners.
o CONS- They can entail long negotiations and significant investments. If the alliance doesn't work out as expected, undoing the JV can take some time and involve considerable cost. A further risk is that knowledge shared with the new partner could be misappropriated by opportunistic behavior. Any rewards from the collaboration must be shared between the partners
• What is alliance management capability?
o A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance, and (3) post-formation alliance management.
• What is the first step in the process of alliance management?
o Partner selection and alliance formation
• What is partner compatibility?
o Partner compatibility captures aspects of cultural fit between different firms.
• Partner commitment?
o Partner commitment concerns the willingness to make available necessary resources and to accept short-term sacrifices to ensure long term rewards.
• What is a dedicated alliance function?
o Led by a vice president or director of alliance management, It should serve as a foundation of prior experience while creating processes and structures to teach throughout the rest of the organization across all levels.
• What is a merger?
o The joining of two independent companies to form a combined entity.
o The purchase or takeover of one company by another; can be friendly or unfriendly.
• Hostile takeover?
o Acquisition in which the target company does not wish to be acquired.
• What is horizontal integration?
o The process of merging with competitors, leading to industry consolidation.
• What are the three main benefits of a horizontal integration strategy?
o Reduction in competitive industry, lower costs, and increased differentiation.
• Why did Google acquire Waze?
o Google acquired Waze to gain access to a new capability and to prevent rivals from gaining access as well as prevent Apple and Facebook from buying Waze.
• Relating to M&A and Competitive advantage, what is the "winner's curse"? On average, do M&As destroy or create shareholder value?
o Winner's curse occurs when a company overpays for an acquisition.
o They destroy shareholder value by managerial hubris.
• For which three reasons do firms make acquisitions?
o Principle-agent problems- managers want to build a larger empire so they can receive more benefits or increased pay.
o Desire to overcome competitive disadvantage-weaker companies can enjoy the perks of a thriving company (example: Adidas acquiring Reebok)
o Superior acquisition and integration capability- increases competitive positions. (example: Disney acquiring Pixar, Lucas Film (Star Wars), Marvel
• What is managerial hubris and its two forms?
o A form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.
o 1. Managers of the acquiring company convince themselves that they are able to manage the business of the target company more effectively and, therefore, create additional shareholder value.
o 2. Although most top-level managers are aware that the majority of acquisitions destroy rather than create shareholder value, they see themselves as the exceptions to the rule.
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