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54 Cards in this Set
- Front
- Back
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equity alliance
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an alliance where 2 or more firms take a joint ownership stake (one firm owns part of the other)
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nonequity alliance
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an alliance that does not involve the creation of a 3rd entity or a joint owernship stake (starbucks and barnes and noble)
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joint venture
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a type of equity alliance in which 2 firms both make an equity investment in a 3rd legal entity
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factors that encourage/discourage opportunisism
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opportunism: probably the factor that most limits the success of alliances -- doing someonthing that someone else might look down on
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encourage opportunism
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poor intellectual property protection; specific investments (assets that do not have multiple uses); infomration asymmetry (one of the partners has better access to info than the other)
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discourage opportunism
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trust (people are not entirely motivated by money); enlightened self interest (more profit can often be gained by avoiding opportunism
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synergy
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the combined benefit of activitities are greater than the sum of their parts
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market value
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the current market capitilization of the firm (share price x total shares)
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equity alliance
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an alliance where 2 or more firms take a joint ownership stake (one firm owns part of the other)
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intrinsic value
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the value of the firm for a particular buyer or seller -- buying the shares via a hositle takeover increases share price, expressing interest in a negotiated purchase increases the share price
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nonequity alliance
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an alliance that does not involve the creation of a 3rd entity or a joint owernship stake (starbucks and barnes and noble)
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opportunism
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risk that the target firm may articficially inflat its value
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joint venture
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a type of equity alliance in which 2 firms both make an equity investment in a 3rd legal entity
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factors that encourage/discourage opportunisism
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opportunism: probably the factor that most limits the success of alliances -- doing someonthing that someone else might look down on
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encourage opportunism
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poor intellectual property protection; specific investments (assets that do not have multiple uses); infomration asymmetry (one of the partners has better access to info than the other)
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discourage opportunism
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trust (people are not entirely motivated by money); enlightened self interest (more profit can often be gained by avoiding opportunism
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synergy
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the combined benefit of activitities are greater than the sum of their parts
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market value
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the current market capitilization of the firm (share price x total shares)
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intrinsic value
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the value of the firm for a particular buyer or seller -- buying the shares via a hositle takeover increases share price, expressing interest in a negotiated purchase increases the share price
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opportunism
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risk that the target firm may articficially inflat its value
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culture clashes
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occurs when firms with divergent cultures have difficulty with M&A's -- particularly risky when a large percentage of firm value is contained in human resources
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causal ambiguity
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high risk of it when interfering with protected synergies
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product extension
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M&A where the target compnay has an alternatively positioned product
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market extension
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m&A where the target company has an alternative geographic scope
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m&a's as r&d
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m&a where the target firm has access to a rare/novel technology
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integration vs. independence
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keep newly acquired firms independent to minimize the risk of degrading causally ambiguous competitive advantages and/or minimizing the risk of culture clash
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industry life cycle
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not all industries display this pattern (food/beverage) -- works well to describe industries driven by technology
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what types of firms are likely to occur and when?
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embryonic stage -- great uncertainty exists as to whether the underlying technology will be greatly accepted or not
--growth stage: major change, interally, large firms coming in, developing a target market --maturity stage: cusotmers more price senstive, m&a activity --decline stage: price compeitition, diff positions lose value |
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real options
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the opportunity (but not the obligation) to take future action
-based on ideas related to financial stock options, assumes biz enviornment is too complex and dynamic to predict future success |
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real options investing approach
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option to adjust an investment in response to unforseen market info
option to abandon investment in response to unforseen market info |
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advantages of real options
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smaller initial investment, less risk, frees up resources (more probing can be done -- probing is a flexibility option), can more easily adapt to market dynamism and complexity
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disadvantages of real options
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could be outmaneuvered by an aggressive rival (flexibility is better in dynamic/undertain environment; focus better in stable environ)
could fall behind too far without realizing it |
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first movers
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attempt to coincide their market entry with beginning of takeoff period (growth stage)
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first mover advantage
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only valuable if an inimitable, nonsub competitive advantage is achieved (reputational advantage -- apple, period of patent protection -tupperware)
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cons of moving first
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research and development, educating consumers
risks: p/s/ sparks interest but is flawed, unforseen technological shifts, lack of access to complimentary asset |
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fast followers
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often do not want to see industry shakeup, worry that change in market demand may degrade value of exisitng assets, hope to enter industry for as long as possible
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second movers/fast followers
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attempt to profit from late entry, larger older firms, target consumer segment that first mover is not well positioned to serve...
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innovators dilemma
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firms have a choice between exploring for new capabilities and exploiting established ones --
explore - increased flexibility, more long term benefits exploit - more immediate benefits, more certain, decreased complexity, best in stable |
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strategic positioning model
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a 2x2 matrix that describes 4 generic strategies from which firms may choose -- used to align firm strategy with market demands
--categorizes firms on 2 dimensions (product differentiation vs. low cost strategy and broad target market vs. narrow target market) |
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focused differentiation
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aim to differentiate based on a feature that has strong, but narrow customer appeal -- porsche, sandals resorts
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broad differentiation
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diff based on a feature that has broad consumer appeal (quality, reliablility) - coke, miller, target
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low cost leadership
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requires maintaining total costs that are lower than what it would cost competitor
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focused low cost leadership
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low cost position target at a specific consumer segment - hampton in and suites for business travelers
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the agency problem
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the agent manages a firm on behalf of the principals or owners -- the problem is mainly cuased by separating ownership from managerial control
--costs are shared (encourages misappropriation of resources) --managers often cannot diversify as easily as owners (mangers more risk averse than shareholder) |
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monitoring agency problem
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responsibility of the board of directors
--might include having regular board meetings, employing auditors to confirm mangers finanaicla and operating numers, hiring/firing execs |
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incentive alignment
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primarily achieved through modifications to executive compensation -- golden parachutes used when a firm is acquired
--more effective than monitoring alone, easier to implement, pay incentives are primarily used to aling managerial and shareholder interests |
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CEO/chair position
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situation where the board chair is also the CEO -- creates potential conflict of interest, can increase board's effectiveness as an advisor, illegal in most euro countries, over 80% of firms have CEO/chair
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incentive alignment
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pay for performance -- may more in absolute terms, can make increased payment when goals are reached
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restrickted stock
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stocks that cannot be sold or otherwise converted into cash until vesting (usually 3-5 years) choose projects that will pay off - long term oriented
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bonus plans
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year end payment for reaching some performance threshold -- makes managers more risk accepting, more short term oriented, can be tied to measures of performance oterh than short/long term orientation
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stock options
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gives teh holder the right but not the obligation to buy stock at the exercise price (usually price on date of issue) -- long/short term depends on vesting period, makes managers most risk acccepting
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look at graphic
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exectuive stock owernship
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firm managers own share of the firm -- makes managers more risk averse, holding share firm may theoretically sell them at any time
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shareholders role in corporate governance
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dispersion of ownership: describes the degree to which a firm's stock is owned by many small investors vs. a few large ones
block holders: shareholders that own a large percentage of a firm institutional investors: firms that manage large sums of money for a 3rd party investors |
