Final Exam - Business Policy and Strategy Flashcards

Terms Definitions
Corporate Strategy
Companywide pattern of action, or “game-plan”,  for achieving sustainable competitive advantage by managing a set of individual businesses owned by a single legal entity (the corporation)
Strategic Fit
Valuable resources and activities in one Business owned by the corporation can be used in other businesses owned by the same corporation, for example Apple brand, software, and distribution channel can be used for iPhone, Macbook, iPad businesses.  Another apps business can be acquired (purchased) and it can use the Apple brand, software, and distribution.
Economies of Scope
Costs are less when two businesses can share resources and activities.
Diversified
A corporation that owns a collection of separate individual business chains of activity, where each chain starts at purchasing supplies and goes through marketing (e.g., sales, distribution, service).
Diversified Multinational Corporation
A single legal entity that owns a collection of separate individual businesses in different countries; a DMNC has more built-in potential for competitive advantage than any other diversification strategy because it can transfer resources or subsidize activities to a greater magnitude and for a longer time than any rival that is not a DMNC
Unrelated Diversification
Ownership of a collection of businesses to create superior profitability for owners without strategic fit across the portfolio. For example, any business that has good ROI (i.e., can be acquired for good financial terms) or has satisfactory profit potential (i.e., good Return on Assets) is a good business to own; there is no intended strategic fit with other businesses in the portfolio.
Related Diversification
Ownership of a business portfolio, or collection of businesses whose activity chains are intended to achieve strengths and distinctive competencies toward corporate profitability from competitively valuable strategic fit across the portfolio.
Industry
Collection of businesses pursuing the same opportunity by offering similar products.
Market
The collection of buyers or customers for the same set of products
Strategic Group
A set of competitors, or rivals, in which each member directly competes in the same position in the industry. On a strategic group map, the strategic group is plotted practically on top of each other but in a different position other sellers within the same industry.
Backward Integration
Acquiring ownership of one's supply chain, usually in the hope of reducing supplier power and thus reducing input costs.
Five Competitive Forces
Suppliers, Buyers, Threat of Entry, Rivalry, Substitutes
Key Problem of Industry Analysis
Assuming you manage an average business with no special strengths or weakness on Key Success Factors, how attractive is your profitability likely to be if you pursue opportunity in an industry, in a strategic group, or in a market?
Four reasons managers analyze an industry
(1)   To understand their external situation- o/t in SWOT;
(2) To justify decisions about which market segment is best to position their business into or out of;
(3) To determine key success factors on which managers must build strength in order to protect their businesses' against high-power threats to profit.
(4) To set reasonable financial & strategic objectives (quantified targets with time deadline) for competitive advantage
Three strategic reasons for a corporation to diversify.
1) Unintended decline in sales: Add a business in a growing or attractive industry to make up for diminishing opportunity in core business portfolio
2) Strategic Fit: Add a business that can combine with or use corporation's existing resources in its other business to convert weaknesses to strengths for superior profitability
3) Economies of Scope and Economies of Scale: Enables a corp. to use its resources more efficiently - combine business activity chains, share resources across chaines to increase scale and eliminate redundancies.
Three tests to determine if acquistion divestiture of a Small Business Unit is a winning strategy
TEST#1. industry attractiveness test: industry to enter must yield consistently good ROI (y-axis).
TEST#2. cost-of-entry test: purchase & initial set-up costs cannot be higher than NPV of future profits  (use matrix to forecast future profits).
TEST#3. better-off test: businesses are stronger on KSF as parts of one corporation than they would be as independent businesses  (x-axis)
How KSF "large scale" defends against the high power threat of LARGE RETAIL BUYERS in the actual athletic show industry
1)  Large Retail Buyers distribute large quantities of athletic shoes and have the option to switch to alternative sellers of athletic shoes.

2)  Large Retail Buyers require that sellers of athletic shoes have LARGE SCALE to produce large quantities and deliver quickly to the broad international scope of their retail chains.

3a) Because of item#2 above, sellers of athletic shoes that have "LARGE SCALE" will sell a large quantity of shoes through the LARGE RETAIL BUYERS. 

3b) Because of item#1 above, sellers of athletic shoes that do NOT have "LARGE SCALE" will sell a small quantity, maybe even zero, through the LARGE RETAIL BUYERS. 

4) Since Profit = [(QUANTITY x AVERAGE SALES PRICE)] - COSTS, therefore according to Item#3a above, and all else equal, "LARGE SCALE" athletic shoe sellers sell a large quantity and their profit remains high despite the high-power threat of LARGE RETAIL BUYERS. The profit of athletic shoe sellers that are NOT "LARGE SCALE", according to Item#3b above and all else equal, is low because quantity in the profit equation remains vulnerable to the high-power threat of LARGE RETAIL BUYERS.
Explain how the key success factor "ECONOMIES OF SCALE" defends against the high-power threat of RIVALRY in the actual athletic shoe industry.
1) High-power threat of Rivalry means that competition on athletic shoe prices, features, and services is likely to be intense. This means that sellers of athletic shoes are likely to reduce prices frequently, and take on added costs for product features, advertising, promotion, and services.
2) Since Profit =  [(QUANTITY x AVERAGE SALES PRICE)] - COSTS, all else equal,  Item#1 above means Profit is vulnerable to high-power threat of RIVALRY because it reduces price and adds to costs of product features and services. One way to protect profit in this situation, all else equal, is to cut costs wherever possible without hurting the product features and services that support Average Price and Quantity.
3) "ECONOMIES OF SCALE" means that the cost per unit produced decreases as the size of production increases. This is a way to cut costs without hurting the product features and services. 
4) According to items#2 and #3 above, therefore, "ECONOMIES OF SCALE" protects profit against the high-power threat of RIVALRY by reducing cost without decreasing the essential product features and services that support higher Average Price and Quantity.  At the same time, if Rivalry forces Average Price to come down, the lower costs of production from ECONOMIES OF SCALE can be passed to customers as lower prices, while preserving profit.
 
Is the business located in the BOTTOM LEFT corner of an “Industry Attractiveness-Competitive Strength Matrix” likely to be profitable? Justify your answer, and in your justification describe the strategic significance of being located in the BOTTOM
•       It is NOT LIKELY to be profitable: Profit =  [(QUANTITY x AVERAGE SALES PRICE)] – COSTS.

•       WEAK on Key Success Factors means SBU has inferior resources & capabilities relative to its rivals so it will sell less quantity of product; has worse quality in products so it cannot justify premium prices; and does not have capabilities to cut internal costs. All this means less profit than rivals.
•       LOW Industry Attractiveness means MANY threats to profit, so even an average firm will have insufficient profitability to cover its cost of capital. A relatively weak business will earn even less than the average rival, so it will earn much less than the cost of capital 
•       CONCLUSION: This SBU is weaker than average so it will earn LESS profit than rivals, and far less than its cost of capital. IMPORTANTLY, because there are many powerful Threats to Profit, the SBU must take on many expenses to battle forces of rivals, suppliers, buyers, potential entrants, or substitutes.  A weak business in this context will have relatively much larger expenses and relatively lower revenue resulting in inability to cover cost of capital and financial losses.
Market Growth-Market Share Matrix
Vertical Axis: Market Growth Rate (Cash Usage)
Horizontal Axis: Relative Market Share (Cash generated)
Stars: High Market Growth, high market share
Cash Cow: Low Market Growth, High Market Share
Dog: Low Market Share, Low Market Growth Rate
Hog: High Market growth Rate, Low market share  (Uses a lot of resources)
Would a Hog company be a source of financial resources?
Describe the strategic significance AND the financial significance for a business to be positioned in the TOP RIGHTof the Market Share-Market Growth Matrix.
 

•       NOT likely source of financial resources for its corporation.  
•       relatively HIGH internal costs of operations and its external market situation demands cash to keep up with HIGH market growth. Cash the business generates over its operating cost is not available for use by the corporation.
•       Smaller market share than its largest competitor, so it has less quantity of sales per year than competitors and, if economies of scale is a factor, then this business is likely to have relative weakness on economies of scale. Therefore, its unit costs of operation are higher than its competitors and it makes less cash available to its corporation than its rivals make available. Also, it is located in a growing market so the business cannot even keep the same market share without needing to spend more cash to grow larger.
Describe the “Driving Forces of Change” that must be assessed as they relate to the “Market Growth-Market Share” Matrix to determine if the strategic assumptions of the matrix are likely to continue over time.
“Driving Forces of Change”: anything in the macroenvironment that is likely to change the magnitude of Growth or contribution to value creation from internal cost advantages. In the “Market Growth-Market Share” Matrix, these changes include :
1. Market or opportunity over time that alters market growth rates.
2. Competitors or SBU that alters market shares relative to largest rivals.
3.  KSF so that “economies of scale” is not important.
4.  Interest rates so “internal bank” is less attractive than “external bank”.
 
Three Realms of Strategic Responsibility
Organizational Design
Market Exchange
Stakeholder
Your corporation must structure its activities into business units that efficiently convert supplies to valuable products for customers. Which one of the three “Realms of Strategic Responsibility” best fits this description?
Organizational Design
The business you manage buys its supplies from your suppliers whose charges go into your business’ cost of supplies; and the business you manage sells its products to customers (buyers) for a price per unit. Which one of the three “Realms of Strategi
Market Exhange
Market Share Alternatives for Business Strategy
1) Grow Share: Grow business sales faster than the industry rate
2) Maintain: Grow sales at the same rate as industry
3) Harvest: Grow sales slower than industry rate
Generic Strategy Alternatives for Business Strategy Path to Competitive Advantage
1) Best-Cost Provider: Provide customer with goods and services comparable to  best offered by differentiated rival, but at lowest internal cost of operations relative to all sellers of comparable products with similar features.
2) Low-Cost Leadership: Lowest internal costs of operations.
3) Differentiation: Offer a different product than what is available
Business Scope Alternatives
1) Customers a) Who - What segments? b) Where - What geographic areas?
2)Product Line a) Breadth - broad (many models), narrow (few models) b) Features : Quality, fashion, price/value
3)Activities a) What : Manufacturing, Marketing, etc. b) Where - What geographic markets?
Social Responsibility
*) return reasonable non-strategic business wealth to owners; use difference between reasonable and maximum profit for social responsibility activities;
*) use profits to improve quality of life in society; return only enough profit to owners to cover the cost of capital, use excess for good citizenship.
Free Market Capitalism
*) maximize shareholder financial value honestly & legally; measure in financial statements;
*) use market power to get best deal for owners;compliance with laws produced democratically;
*) honesty in bargaining & negotiating; in buying & selling; in financial reporting;
*) return all non-strategic business wealth to owners; do not use business wealth for social responsibility.
Distributive Justice
strive for peaceful world in which necessities for quality of life are evenly distributed among all people, measure in global quality of life.
*) urgent nonviolent action on behalf of justice; use legal means but it's ok to violate law if justice demands it; use boycott as economic weapon.
*) enact programs for social uplift;
*) have love for people rather than love of profit
*) global perspective, think globally, not locally.
What is the type of social issue that is defined as not significantly affected by a company’s operations nor materially affecting its long-term competitiveness?
Generic Social Issues
 

What is the type of social issue that is defined as significantly affected by a company’s activities in the ordinary course of business?
Value Chain Social Impacts
Openness about decisions and activities that affect society, the economy and the environment and willingness to communicate these in a clear, accurate, timely, honest and complete manner?
Transperancy
Responsibility of an organization for its decisions and activities, and state of being answerable to its governing bodies, to legal authorities and, more broadly, to its other stakeholders regarding these decisions and activities.
Accountability
A business gets more cooperation and support from stakeholders who perceive its future behavior is likely to be favorable than they get from stakeholders who perceive it will behave unfavorably.
Reputational Capital
Stakeholders perception of future behavior of the business based on its past behavior.
Business Reputation
generic competitive strategy has for its basis of competitive advantage either a product service offer whose attributes differ significantly from the offerings of rivals or a set of capabilities for delivering customer value that rivals don’t have; but
Differentiation
Collection of independent businesses pursuing the same opportunity by offering similar products.
Industry
Which core concept from lecture is defined as "Management's story for how and why the business will produce an attractive profit. In short, the narrative management tells to explain the intended sources of revenue, the uses of significant financial expen
Business Model
Which core concept from lecture is defined as "The use of substantial resources & expense for a pattern of business action that is intended to generate superior performance relative to rivals by capturing the most attractive opportunities and defending a
Strategy
According to lecture, what core concept is defined as "The line activities of a business (e.g., inbound logistics & purchasing, operations, marketing) viewed from the perspective of their efficiency in cost and time to move supplies & work-in-progress in
Supply Chain
According to lecture, which " The line activities of a business (e.g., inbound logistics & purchasing, operations, marketing) viewed from the perspective of the value each activity adds to raw materials, supplies, and work-in-progress for customers"?
Value Chain
Which core concept from lecture is defined as “The managerial decisions that acquire, allocate, and use resources to execute (put into operation) the pattern of action that is likely to solve the central Strategic Problem”?
Strategy Implementation
According to lecture, what is the core concept that means "the organizational unit that can have an independent strategy even though it is owned by a corporation"?
Strategic Business Unit
According to class lecture, what does the "O" in SWOT stand for?
Opportunity
Which core concept from lecture is defined as “Analyzing the strategic situation and selecting (coming up with) the pattern of action that is likely to solve the central Strategic Problem”?
Strategy Formulation
Strength of internal resources & capabilities a business has on hand to take action on a Key Success Factor; measured relative to rivals' attributes on the same KSF.  The strategic implication of this key term is that for a business to be strong on KSF
Distinctive Competency
Tests of Competitve Advantage
1) Inimitability: Is resource hard to copy?
 
2) Appropriabilty: After bargaining between buyers/sellers/suppliers who captures the value?
 
3) Substitutability: Can a unique resource be trumped by a different resource?
 
4) Competitive Superiority: Among rivals, whose resource is really better for executing specific skills?
 
5) Durability: How quickly does the resource depreciate? Can the resource sustain competitive advantage over time?
Generic Social Issues
Not significantly affected by a companies operations, not strategic.
Value Chain Social Impacts
Significantly Affected by a company's activities.
 
Strategic CSR if benefit society while reinforcing strategy.
 
Responsive but not strategic CSR if mitigating existing or anticipated adverse effects from business activities
Social Dimensions of Competitive Context
Unique reputational capital with important stakeholders that significantly affect the underlying drivers of a company's competitiveness in the locations where it operates.
Managerial Virtue
Explain your actions publicly and with pride.
-Assume your actions will become public knowledge
-Believe that trading your virtue for money is shameful
Integrity - Be true to thine own self.
What social issues are part of strategic CSR?
Social dimensions of competitive Context
Value chain social impacts
Central Problem
How will this firm achieve a sustainable competitive advantage; in other words, how will it earn strategic and financial results that are superior to its rival and sustainable over time?
Solution to the Key Problem
Achieve a sustainable competitive advantage by acquiring and using resources to have relatives strengths on key success factors necessary to pursue opportunities and to defend against the threats to its profits from powerful forces of competition.
 
ACQUIRE RESOURCES (1) THAT ARE strengths  (1.5) on KSF (+1.5) to pursue opportunity (+1.5) & defend against threats to profit (+1.5)
Describe three conditions when being an innovator, or first mover, may have competitive advantages.
1) Customers prefer to buy from innovators, so if you're first you build good reputation with buyers.
2) First movers get a cost advantage over rivals by starting down the learning curve earlier and also locking up the best suppliers with long-term contracts & commitments.
3) If customers prefer to be loyal to sellers, then the first mover captures their loyalty and rivals must search elsewhere for customers.
4) First mover has a virtual monopoly if it is difficult, expensive, or takes a long-time for them to be imitated by a competitor. Moving First Can Block Competitors From Achieving Strengths on Key Success Factors
 
According to the article “Strategy as Simple Rules”, How do you figure out if your strategy-making rules are stale? In other words, what are the signs that your strategy-making rules may need a refresh?
YOUR RULES MAY NEED A REFRESH if:
*) YOUR SHARE PRICE IS DROPPING RELATIVE TO YOUR COMPETITORS‘ SHARE PRICES,
*) YOUR PERCENTAGE OF THE INDUSTRY'S MARKET VALUE IS DECLINING,
 *) GROWTH IS [UNINTENTIONALLY] SLIPPING,.” [113]
 
 
List four different strategic reasons that justify a business scope expansion from domestic to foreign markets.
1) Capture additional opportunites outside the domestic market.
 
2)Achieve global economies of scale that lower costs beyond what is possible from domestic sale volumes.
 
3) Achieve more earnings from existing strengths by transferring or sharing then in foreign operations.
 
4) Reduce cost of operations by sourcing from lower cost suppliers located outside the domestic industry.
Multicountry Strategy
Pattern of action to achieve competitive advantage by allowing country-area managers to be autonomous & exercise decentralized decision making to respond to needs of each country market without coordinating with corporation's other country managers.
Global Strategy
The international strategy for which product style & design fit a standard specification across each country in the business scope in order to achieve economies of scale in the supply chain; pattern of action to achieve competitive advantage by going for global economies of scale, requires coordination throughout corporation and centralized decision making that takes away authority of country managers to make  changes even if it might be best for the unique requirements in their scope of operations
 
Explain why a centralized organizational decision-making structure is the best fit for a Global strategic approach to international business.
Global strategy requires coordination of products and process throughout the corporation toachieve global economies of scale; centralized decision making takes away authority of country managers to make  changes even if it might be best for the unique requirements in their scope of operations
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