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43 Cards in this Set
- Front
- Back
Strategic managers often pursue diversification when _________ |
their companies are generating free cash flow. |
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Free cash flow is ___________ |
financial resources they do not need to maintain a competitive advantage in their companies core industry, thus can be used to fund new, PROFITABLE business ventures. |
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A diversified company can create value in 5 ways: |
1. transforming competencies to create new businesses. 2. leveraging competencies to create new businesses. 3. sharing resources to realize economies of scope. 4. using product bundling 5. taking advantage of general organizational competitiveness that enhance the new bus. |
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The ____________ of diversification rise as a function of the number of independent business units within a company and the extent to which managers ,ust coordinate the transfer of resources between those business units. |
bureaucratic costs |
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Diversification motivated by a desire to pool risks or achieve greater growth often results __________ |
in falling profitability. |
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What are the three methods companies use to enter new industries? |
1. internal new venturing 2. acquisition 3. joint venture |
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_________ is used to enter a new industry when a company has a set of valuable competencies in its existing business that can be leveraged or recombined to enter a new business or industry. |
Internal new venturing |
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Many internal ventures fail because _________ |
of entry on too small a scale, poor commercialization, and poor corporate management. |
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What guards against failure when pursuing internal ventures?
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carefully planned approach to project selection and management , integration of R&D and marketing to improve the chance new products will be commercially successful. And entry on a scale large enough to result in competitive advantage. |
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When a company lacks the competencies required to compete in the new industry, what is the best method? And explain
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Acquisitions: purchase a company that does have those competencies at a reasonable price.
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When entry barriers are high and a company is unwilling to devote the time frame, dev costs, and risks, what is the best method to enter into a new industry?
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`Acquisitions
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What are the ways Acquisitions can be unprofitable?
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when managers... 1. underestimate the problems associated with integrating an acquired company. 2. overestimate the profit that can be created from an acquisition. 3. pay too much for the acquired company. 4. perform inadequate pre-acquisition screening to ensure the acquired company will increase profitability of the whole company. |
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Joint Ventures are used to enter an industry when __________ (2)
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1. the risks and costs associated with setting up a new business unit are more than a company is willing to assume on its own. 2. a company increase the profitability that its entry into a new industry will result in a successful new business by teaming up with another company with skills and assets that complement its own. |
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Restructuring is often required to correct the problems that result from a ________(4)
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1. a business model that no longer creats competitive advantage. 2. the inability of investors to assess the comptetitive advantage of a highkly diversified company from its financial statements. 3. excessive diversification because top managers desire to pursue empire building that results in growth without profitability. 4. innovation in strategic management such as strategic alliances and outsourcing that reduce the advantages of vertical integration and diversification. |
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A company qualifies as diverse when it makes and sells products in two or more industries, that are _____________ |
not in adjacent stages of an industry value chain (vertical integration) |
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The diversification strategy the firm chooses, must pass the "better off" test which is _____ |
the firm must be more valuable than it was before the diversification, and the cost of entry into new industry must be taken into account. |
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AN example of a firm transferring competencies to diversify would be ________ |
Philip Morris transforming its best marketing experts to Miller (the acquired company) to create Miller Lite |
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Companies that base their diversification strategy on transferring competencies tend to _______ |
acquire new businesses related to their existing business activities because of commonalities between one or more of their value-chain functions. |
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Synergies that arise when one or more of a diversified company’s business units are able to lower costs or increase differentiation |
Economies of Scope |
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Sources of cost reductions:
Sharing Resources and Capabilities |
1. Sharing lowers the cost structure 2. Marketing function creates the differentiation of products leading to a higher ROIC |
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Takinga distinctive competency developed by a business unit in one industry andimplanting it in a business unit operating in another industry |
Transferring Competencies |
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Skill or competency that whenshared by two or more business units allows them to operate more effectivelyand create more value for customers. |
Commonality |
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Transferring Competencies Increaseprofitability when they: |
1. lowerthe cost structure of one or more of a diversified company’s business units. 2. enableone or more of its business units to better differentiate their products. |
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Distinctivecompetency being transferred must have real strategic value. T or F |
True |
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Competenciesshould involve value-chain activities to increase profitability. T or F |
True |
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Takinga distinctive competency developed by a business unit in one industry and usingit to create a new business unit in a different industry |
Leveraging Competencies
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Providingproducts that are connected to each other |
Product Bundling |
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Product Bundling Allowscompanies to expand their range by ____________ |
providing customers a complete package |
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Goal- Bundle products to offer customers: |
1. lowerprices. 2. superiorset of services. |
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Product Bundling Doesnot always require joint ownership and Canbe achieved through market contracts T or F |
True |
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Helpbusiness units within a company perform at a higher level than it could if itoperated as a separate or independent company |
General Organizational Competencies |
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General Organizational CompetenciesResultsfrom ___________________ |
the skills of a company’s top managers |
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Three types of General Organizational Competencies are ____________________ |
1. Entrepreneurialcapabilities 2. Organizationaldesign capabilities 3. Strategiccapabilities |
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_______________ is Requiredto take advantage of the free cash flow Three types of General Organizational Competencies are ____________________ |
Entrepreneurialcapabilities |
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Topromote entrepreneurship, a company must:(4) Three types of General Organizational Competencies are ____________________ |
1. encoruange magers to tak risks 2. give managers the time and resources to pursue novel ideas 3. not punish managers when a new idea fails 4. make sure that the company's free cash flow is not wasted in risky ventures that would generate low ROI |
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Organizational design skills are the _________ Three types of General Organizational Competencies are ____________________ |
Abilityof the managers to create a structure, culture, and control systems thatmotivate and coordinate employees to perform at a high level |
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Managers of a diversified companyidentify inefficient and poorly managed companies in other industries. |
Turnaround strategy |
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Companies pursuing a strategy of unrelated diversification have no intention of ___________ |
transferring or leveraging competencies between business units or sharing resources other than cash and general organizational competencies |
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What are the three reasons why a business model based on diversification may lead to a loss of competitive advantage? |
1. Changes in the industry or company 2. Diversification for the wrong reasons 3. The bureaucratic costs of diversification |
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growth does not create value for the stakeholders; growth is the _________ |
by-product, not the objective of diversification. |
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an unrelated company only has to cope with the bureaucratic cost, while a related company has to cope with both bureaucratic costs and _________ |
from coordination among business units |
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It pays for a company to pursue related diversification when _______(2) |
1. the company's competencies can be a applied across a greater number of industries 2. the company has superior strategic capabilities that allow it to keep bureaucratic costs under close control. (e.g. encouraging entrepreneurship or by developing value creating organizational culture. |
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it pays for a company to pursue UN-related diversification when _______(2) |
1. each business unit's functional competencies have few useful applications across industries, but the company's top managers are skilled at raising the profitability of a poorly run business 2. the company managers use their soupier strategic management competencies to improve the competitive advantage of their business units and keep bureaucratic costs under control. |