notes_MGMT101_summary of the book

Ii1 benefits secure raw materials new business

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b.ii.1. Benefits: secure raw materials, new business opportunities and technologies, eliminate need to negotiate
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b.ii.2. Risks: costs result in increased overhead, feel supply shocks more, additional administrative costs b.ii.2.a. Consider: Is the company satisfied with suppliers/distributors, are there activities in the value chain that can be performed for profits, is there high sustained demand for the product, is there excess capacity for production of the material, does the company have the necessary competencies, what are the negatives b.ii.2.b. Transaction cost perspective: Vert int can reduce the search, negotiating, contract, monitoring, and enforcement costs of contracting with outside firms. And reduced transaction-specific investment (making a specific part), which firms usually wont do because they may not be able to recover the cost, and they cant sell it to anyone else. b.ii.2.c. These all must be compared to the additional administrative costs c. Unrelated diversification – synergies created from corporate offices c.i. Parenting and Restructuring c.i.1. Parenting – management expertise c.i.2. Restructuring – purchase failing or unrealized potential company and change strategy, infuse with capital, new technologies, complete overhaul. c.i.2.a. Asset restructuring – sale or purchase of assets c.i.2.b. Capital Restructuring – debt-equity ratio c.i.2.c. Management restructuring – changes in organizational structure, management team, etc c.ii. Portfolio management – allocation of resources (not enough investment) c.ii.1. BCG matrix (cash cows, stars, question marks (high growth/low share), and dogs. Changes goals and rewards c.ii.1.a. This view assumes that there are only two criteria to evaluate firms on and that every unit can be compared in this way. It views each SBU as a stand-alone unit and ignore core competencies. Using strict rules is bad for long- term investment d. Problems with diversification as a risk-reducer d.i. Stockholders can diversify at a cheaper cost d.ii. It may not work e. Methods of diversification e.i. M&A – acquiring is faster than building, consolidate industry, adding resources, leverage comp, share act, and build market power e.i.1. Limits: takeover premium is high, competing firms can imitate and copy realized synergies, managers’ ego can get in the way, cultural issues, e.i.2. Divestment (reverse M&A) – cut your losses, more resources for more attractive investments,
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e.ii. Strategic alliances (cooperative relationship between 2 or more firms (formal or informal)) and joint ventures (2 or more firms pool equity to form a new entity) e.ii.1. Share activities e.ii.2. Problems: if the partnership isn’t right it will fail, each must bring a unique capability, so the synergy isn’t easily replicated e.iii. Internal development e.iii.1. No sharing of the wealth e.iii.2. Can take longer than other methods to develop tech f. Many times CEOs grow for the sake of growing, hubris stops them from cutting losses, g. Antitakover tactics – g.i. Greenmail – top management buys back the stock at a higher price g.ii.
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