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MGMT 449

Exam 2 Review

QuestionAnswer
Differentiation Strategty: 163 A form of competitive advantage. Products and/or services that are unique and valued industrywide.
Overall cost leadership: 157 A firm’s generic strategy based on appeal to the industry wide market using a competitive advantage based on low cost. Based on creating a low-cost position.
Overall cost leadership risks: 160 Risk: 160. Must attain cost advantage relative to its rivals, unable to attain parity on dimensions of differentiation then firm will fail.
Overall cost leadership pitfalls: 162 Too much focus on one or a few value-chain activities. All rivals share a common input of raw material. The strategy is imitated too easily. A lack of parity on differentiation. Erosion of cost advantages when the pricing info available to customers incre
Strategic management at the business level. : 267 (Recognizing Entrepreneurial Opportunities) x
Internet transaction costs: 172. Refer to all the various expenses associated with conducting business. Applies to interacting with every part of a firm’s value chain, within and outside of the firm.
Maturity of the market. 177. Maturity stages of an industry can be transformed or followed by a stage of rapid growth if consumer tastes change, technological innovations take place, or new developments occur in the general environment.
Corporate level strategy: 216-217 x
Core competencies. 195. A firms strategic resources that reflect that collective learning n the organization - how to coordinate diverse production skills, integrate multiple streams of technologies, and market and merchandise diverse products and services. EX: radio on a chip Must meet 3 criteria:1) The core competence must inhance competitve advantage by creating sup customer value. Ex: Gilette's Fusion and Mach 32)Different businesses in the corp must be similar in at least one improtantant way related to the core . . . competence - at least one element in the value chain must require similar skills in creating core competence, EX Toyota making houses. 3)The core competencies must be difficult for competitors to imitate or find substitutes for.
Merger and acquisitions. 210. Mergers - the combining of two or more firms into one new legal entity.Acquisitions - the incorporation of one firm into another through purchase. M&A allows corps to directly acquire a firm's assets and copetencies. Mergers are relatively rare
M&A: Strategic alliance. 214. Similar to joint ventures but does not require both parties to contribute equity. x x
Joint ventures AKA Strategic Alliance. 214. Involves using resources of other companies with their resource base. Important difference b/w joint venture and strategic alliance is that JV involve the formation of a third-party legal entity where the two (or more)firms each contribute equity, whereas strategic alliances do not.
BCG portfolio management technique. 206. x
Parenting and wise choices. 204 Parenting advtg - the positive contributions of the corporate office to a new business as a result of expertise and support provided and not as a result of substantial changes in assets, capital structure, or management. Help make wise choices in their own acquisitions, divestitures, and new internal development decisions and thereby helping companies increase their revenue.
Vertical integration. 200. VI occurs when firm becomes its own supplier or distributor . . . The firm incorporates more processed twoward the orignal source of raw materials (backward inegration) or toward the ultimate consumer (forward integration). Benefits include: secure supply of raw materials or distribution channels that cannot be "held hostage" to external markets where costs fluctuate over time, 2) protection and control over assets and servicesrequired to produce and dl
Value chain and the life cycle of the service or product x
Diversification (206-209)? and globalization (Chap 7) x
Rivalry and strong consumer demands in a nation (231-232) x
Nation policy to protect domestic competitiveness Chap 8 x
Golden parachute / poison pills / the green mail. 220. x
Affect of appreciation of dollar in a Firm that operates in a foreign country p239 Currency Risks x
Outsourcing and the value creating activities. 240. x
The most typical order of entry into a foreign market 251 Entry Modes of International Expansion x
Factors to consider when a domestic company considers expansion in a foreign country for the first time p236 Potential Risks of International Expansion x
Competitive advantage in the global setting (Porter) Chap 7 x
Global strategy limitations. 253. x
The process of identifying and developing new venture opportunities (domestic) x
Disadvantages of transnational strategies 249 Risks and Challenges x
Two phases of opportunity recognition. 269. The process of discovering and evaluating changes in the business environment, such as a new technology, socio cultural trends, or shifts in consumer demand that can be exploited. Two phases are discovery and evaluation.
Competitive attack. 291. x
Actions that a firm might take to combat competition 291-293 x
Market commonalty. 287 The extent to which competitors are vying for the same customers in the same markets.
Tactical action in response to competitive attack 291 x
Venture capital. 272. Is a form of private equity financing through which entrepreneurs raise money by selling shares in the new venture.
Entrepreneurial opportunity. 267. x
Poison Pills & The Green Mail x
Anti-Takeover x
Examples of Differentiation: 163 -Prestige or brand image (BMW's)-Technology (Martin guitars)-Innovation (Nokia cellular phones)-Features (Cannondale mountain bikes)-Customer Service (Nordstrom)-Dealer network (Lexus autosmobiles)
Can/should firms differentiate along several diff dimentions at one: 163 BMW is know for its high prestige, superior engineering and high-quality autos.Harley Davidson differentiates on image and dealer services.
How do firms achieve and sustain differentiation advantages and above-average performance? When their price premiums exceed the extra costs incurred in being unique.Ex: BMW and Haley must increase consumer costs to offset added maerting expenses
Why must a differentiator attain a level of cost parity? B/c if it did not, and ignored costs, its premium prices would be eroded by a markedly infereior cost position therefore, it must attain cost parity relative to its competitors.
What is competitive parity? 158 a firm's achievement of similarity, or being "on par," with respect to low cost, differentiation, or other strategic product characteristic Competitive parity on the basis of differentiation permits a cost leader to translate cost advantages directly into higher profits than competitors; thus, the cost leader earns above-average returns.
Overall Cost Leadership - Experience Curve: 158 Refers to how a business "learns" to lower costs as it gains experience with production processes. That is . . . with experience, unit costs of production decline as output increases in most industries.
What are the risks and benefits of VI? Risks: Costs and expenses associated with increased overhead and capital expenditures. Loss of flexibility resulting from large investments. Problems associated with unbalanced capacities along the value chain. Additional administrative costs associated w managing a more complex set of activites. Benefits . . . a secure source of raw manteirals or distubution channels. Protection of and control over vaulable assets. Access to new business opportunites. Simplified procurement and administrative procedures.
What are the six issues that should be considered in making vertical integration decisions? 1.Is the company satisfied with the quality of the value that its present suppliers and distributors are providing? 2)Are there activities in the industry value chain presently being outsourced or performed independently by others that are a viable . . . source of future profits? 3) Is there a high level of stability in the demand for the organization's products? 4) How high is the proportion of additional production capacity actually absorbed by existing prods or by the prospects of new n similar prods? 5)Does the co. have the necessary competincies to execute the vertical integration strategies? 6) will the vertical integration initiative have potential negative impacts on the firm's stakeholders?
What are the 2 types of vertical (or hierarchical) relationships - the creation of synergies form the interaction of the corporate office w/the individual business units. 1)Parenting - parent companies create value through management expertise by improving plans and budgets and provide especially competent central functions such as legal, financial, human resource magmt, procurement. Alos help comp 1a)Restructuring - the intervention of the corporate office in a new business that substanitally changes the assets, capital structure, and/or mgmt including selling off parts of the biz, changing the mgmt, reducing payroll and unnecessary sources of... expenses, strategies, and infusing thenew biz with new technologies, processes
Examples of overall cost leadership: 157 -Aggressive contruction of efficient-scale facilities.-Vigorous pursuit of cost redctuions from experience.-Tight cost and overhead control. -Avoidance of marginal customer accounts.-Cost minimization in all activies in the firm's value chain, such as R&D, service, sales force, and advertising.
Means by which a firm can go about achieving synergies and creating value: 1) M&A2) Joint Venture3) Internal Development
Created by: diaznikki8