Strategy And Policy Exam

Front 1

the goal of good corporate governance

Back 1

to ensure that Managers act to serve goals of Shareholders

Front 2

corporate governance has 2 types of mechanisms

Back 2

internal and external mechanisms

Front 3

corporate government internal mechanisms (3)

Back 3

1. board of directors: represent firm's owners by monitoring top-level decisions, include internal and external directors
2. ownership concentration: ratio of stocks owned by individual shareholders and institutional investors
3. executive compensation: salary, bonuses, long-term incentives

Front 4

corporate government external mechanisms (3)

Back 4

1. market for corporate control: efficient corporations acquire under performing corporations and improve their performance through improved management
2. auditors: check accounting and management practices
3. laws and regulators: current laws and regulations as well as the threat of future laws and regulations keep things in line

Front 5

principle agent problem definition (3 parts)

Back 5

the principle (the person who wants a task performed) and the agent (the person performing the task)
1. do not have aligned goals
2. the principle can't observe the agent while he's working
3. the agent knows more than the principle about what needs to be done

Front 6

consequences of the principle agent problem

Back 6

agent engages in investments that serve his interests, not the principle's

Front 7

horizontal and vertical integration definition/questions for corporate strategy

Back 7

horizontal integration: in which business areas should we be active?

vertical integration: how much of the value chain should we own?

Front 8

two key tests to apply to any expansion in the corporate scope

Back 8

1. the better-off test: do the business units create and capture more value if they're related than they could as separate entities (keeping in mind lower costs and increased willingness to pay)

2. the ownership test: do the business units create more value under common ownership than they would if they were related in other ways?

Front 9

apply the better-off test and the ownership test horizontally verses vertically

Back 9

1. the better-off test: can you get lower costs or higher average prices by including multiple business units int he firm? look for economies of scope (synergies) and boost in wtp (cross-selling) SAME

2. should the firm own both businesses? look at intangible assets. or should the firm integrate vertically?

Front 10

two conditions where market relationships fail

Back 10

1. relationship-specific investments are needed to make the transaction work (opportunism, hold-up). higher opportunism leads to higher costs of market exchange
2. the possibility that one party might renege or cheat

Front 11

two benefits of using the market rather than acquiring horizontally

Back 11

1. powerful incentive mechanisms: market relationships involve higher incentives for performance
2. informational efficiencies: price mechanisms + decentralized decision making can be more efficient than involving managers

Front 12

range of intermediate forms of vertical integration (6)

Back 12

1. within-firm deals
2. partial ownership
3. joint ventures
4. strategic alliances / franchises
5. longer contracts / short-term contracts
6. market deals

Front 13

firm acquisition: winner's curse

Back 13

the winning bidder in acquiring a new company usually pays too much

Front 14

when does a company achieve a competitive advantage

Back 14

when it achieves higher profit than the industry average

Front 15

two trade-offs when choosing a competitive position

Back 15

1. low cost (cost leadership) or premium prices (differentiation)

2. all segments of the market (broad) or a few segments (narrow)

Front 16

focus strategy definition

Back 16

when you target only a narrow market

Front 17

when does a first-mover advantage exist?

Back 17

it depends. will be determined by straightforward micro-economic conditions in the market

Front 18

first-mover advantages from size (4)

Back 18

1. scale economies: average costs decline as output increases
2. scope economies: single firm provides multiple goods/services which either decrease cost or increase wtp
3. network effects: when the value of good/service depends on # of people already using it
4. learning effects: average cost declines as cumulative production increases

Front 19

first-mover advantages from timing (4)

Back 19

1. preemption: 5 types
2. reputation effects: achieve premium brand name
3. buyer switching costs: 1st mover locks in customers
4. patents or institutional barriers: governing authority restricts future entries

Front 20

different types of preemption (5)

Back 20

1. input preemption: secure input factors under better terms than others (uranium for nuclear power)
2. channel preemption: secure better distribution channels (long-term contracts)
3. location preemption: get limited premium locations (ocean view restaurant)
4. capacity preemption: achieve sufficient production capacity that potential followers recognize they cannot profitably compete with
5. positioning preemption: choice of the best position, followers must compete directly or choose a worse position

Front 21

first-mover disadvantages (4)

Back 21

1. pioneering costs
2. demand uncertainty
3. technological uncertainty
4. incumbent inertia

Front 22

the purpose of a 5 forces analysis (3)

Back 22

1. assess current average industry profitability
2. help us understand the impact of trends and events on industry profitability
3. help us make recommendations to firms on how to improve the overall environment and the firm's position within that environment

Front 23

factors that make supplier power LOW (8)

Back 23

1. many suppliers
2. small suppliers
3. cannot forward integrate
4. good alternative supplies
5. supplier not important to industry
6. industry important to supplier
7. standardized products
8. low switching costs

Front 24

factors that make buyer power LOW (8)

Back 24

1. many buyers
2. small buyers
3. cannot backwards integrate
4. many good alternatives to industry products
5. industry very important to buyer
6. buyer not very important to industry
7. differentiated products
8. high switching costs

Front 25

key issue with substitute products

Back 25

what is relative price-value ratio of products in the industry vs. alternative products

Front 26

factors that make industry rivalry low (6)

Back 26

1. few rivals (less than six)
2. different sizes
3. growing industry
4. low exit barriers
5. high switching costs
6. favorable supply and demand conditions (ex. of unfavorable: perishable industry, volatile demand)

Front 27

factors that lead to high entry barriers and low threat of entry (6)

Back 27

1. economies of scale
2. high product differentiation
3. high capital requirements
4. cost disadvantages for new entrants
5. difficult access to distribution channels
6. favorable government policies

Front 28

define the industry using 3 factors

Back 28

similar product, buyers and suppliers

Front 29

according to porter the difference between operational effectiveness and strategy

Back 29

operational effectiveness: the extent to which we perform similar activities better than rivals

strategy: performing different activities from rivals in different ways, making trade-offs. UNIQUE ACTIVITIES

Front 30

what's more important according to porter, o.e. or strategy?

Back 30

o.e. is necessary but you cannot have a competitive advantage without a superior strategy

Front 31

grant's definition of strategy and the three things strategy is composed of

Back 31

strategy is not a plan, it is a unifying theme that gives coherence and direction to the actions/decisions of individuals and the firm

strategy composed of:
1. long-term simple objectives
2. deep understanding of the competitive environment
3. objective appraisal of resources

Front 32

mintzberg's view on strategy

Back 32

strategy is composed of strategy as design AS WELL as strategy as process

strategy as design: planning and rational choice, intended strategy

strategy as process: decision makers responding to internal and external forces, emergent strategy

Front 33

3 things wrong with SWOT analysis

Back 33

1. doesn't tell us anything about expected industry average profits
2. doesn't tell us anything definitive about firm-level source of profits
3. isn't sufficiently structured to tel us about fit