MNGT4800 CH8 Notes
MNGT4800 CH8 Notes MNGT 4800
Popular in Strategic Management (Section 009)
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This 3 page Class Notes was uploaded by Peyton Oglesby on Wednesday February 17, 2016. The Class Notes belongs to MNGT 4800 at Auburn University taught by Dr. Peter Stanwick in Spring 2016. Since its upload, it has received 20 views. For similar materials see Strategic Management (Section 009) in Business, management at Auburn University.
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Date Created: 02/17/16
Exam 2 Study Guide Part 2 Chapter 8 Corporate strategy- the search for competitive advantage when competing in several industries This is where we ask “where to compete?” Corporate strategy has to do with the scope of the organization: Industry value chain Geography Services and products 3 dimensions of corporate strategy: Vertical integration- (controlling the value chain 5 step process shown in exhibit 8.4) what stages of the industry value chain and degrees Horizontal integration and diversification- what range of services and products and degrees o Successful diversification must be ALIGNED with and STRENGTHEN a companies’ business strategy Global strategy-where in the world to compete Economies of scale- as the average per-unit cost decreases as its output increases Economies of scope- the savings from producing more than one output together rather than separately producing through using the same resources and technology Transaction cost- the cost related with economic exchange (make or buy decision) Make or Buy? (Firms v Markets) Disadvantages of making things in house: The agents pursuing his/her own interests Inefficient costs Principal-agent problem Disadvantages of buying from markets (aka outsourcing): Cost of searching for the right item Paying premiums Enforcing legal contracts Incomplete contacting Make or Buy Continuum ALTERNATIVES: Short term contacts o Less than a 1 year term o Lower prices, thus cost advantages o Competitive bidding process Strategic alliances-facilitates investments without admin. costs Parent-subsidiary relationship What stages of the value chain should the firm participate in? Vertical integration-ownership of its input, production, and outputs Vertical value chain- integration from upstream to downstream See slide 10 for visual Different Types of Vertical Integration: Full vertical integration Backward vertical integration Forward vertical integration See slide 12 for visual “Not all industry value chain stages are equally profitable” The BENEFITS of vertical integration: Lowering cost Securing important supplies Improve quality Facilitate investments Facilitate scheduling and planning The RISKS of vertical integration: Reducing quality Increasing costs Decreasing flexibility Higher risk for legal repercussions Corporate Diversification Expanding past single market Degrees of diversification the range of services and products a firm should offer Diversification strategies o Product diversification o Product-market diversification o Geographic diversification (Important) Types of corporate Diversification: Dominant business Single business Related diversification o Related linked o Related constrained Unrelated diversification “The core competencies provide guidance to executives on how to diversity in order to achieve continued growth” Diversification discount stock price of diversified firms are less Diversification premium stock price of a diversified firm are greater How does diversification enhance performance? Lower the cost with economies of scale Increase the value with economies of scope Thus simultaneously increasing value while reducing cost Restructuring-reorganizing and divesting business combine Boston Consulting Group growth share matrix (BCG Matrix) Dogs Cash cows Stars Question marks **Slide 23** will be on the exam Side notes from that slide: The goal is to be a cash cow!! Cash cow- milk it! It’s a permanent position. With the excess money you earn invest it in the Question Marks There’s nothing wrong with going from a question mark to a cash cow You don’t want all stars at one time, you will run out of money Growth industry you want to be a star Mature industry you want to be a cash cow