BUSI 7130/7136 Exam 2 study guide

1. 5 Forces.
a. Power of suppliers
i. Supplier concentration
ii. Importance of volume to supplier
iii. Differentiation of inputs
iv. Impact of inputs on cost or differentiation
v. Switching costs of firms in the industry
vi. Presence of substitute inputs
vii. Threat of forward integration
viii. Cost relative to total purchases in industry
b. Power of buyers
i. Bargaining leverage
ii. Buyer volume
iii. Buyer information
iv. Brand identity
v. Price sensitivity
vi. Threat of backward integration
vii. Product differentiation
viii. Buyer concentration vs. industry
ix. Substitutes available
x. Buyer’s incentives
c. Threat of substitutes
i. Switching costs
ii. Buyer inclination to substitute
iii. Price-performance tradeoff of substitutes
iv. Varity of substitutes
v. Necessity of product or service
d. Rivalry
i. Exit barriers
ii. Industry concentration
iii. Fixed costs/value added
iv. Industry growth
v. Intermittent overcapacity
vi. Product differences
vii. Switching costs
viii. Brand identity
ix. Diversity of rivals
x. Corporate stakes
e. Threat of new entrance
i. Absolute cost advantages
ii. Proprietary learning curve
iii. Access to inputs
iv. Government policy
 v. Economies of scale
vi. Capital requirements
vii. Brand identity
viii. Switching costs
ix. Access to distribution
x. Expected retaliation
xi. Proprietary products
2. VRIO.
Valuable Rare Cost of Exploited by Competitive Economic
imitation company implication implication
No Disadvantage Below
Normal
Yes No Parity Normal
Yes Yes No Temporary Above
advantage Normal
Yes Yes Yes Yes Sustainable Above
Advantage Normal

3. 4 Generic business strategy and its drivers.

a. Broad Cost leadership
i. Economies of scale
ii. Learning
iii. Economies of scope
iv. Superior technology
v. Product design
vi. Location
vii. Threats: New technology, Too low quality, Social, political and economic risks of
outsourcing
b. Focused Cost leadership
i. Economies of scale
ii. Learning
iii. Economies of scope
iv. Superior technology
v. Product design
vi. Location
vii. Threats: New technology, Too low quality, Social, political and economic risks of
outsourcing
c. Broad Differentiation
i. Premium brand image
ii. Customization
iii. Unique styling
iv. Speed
v. Convenient Access
vi. Unusually high quality
 vii. Threat: Failure to increase buyer willingness to pay higher price, underestimating
cost of differentiation, over fulfillment of buyer’s needs, lower cost imitation
d. Focused Differentiation
i. Premium brand image
ii. Customization
iii. Unique styling
iv. Speed
v. Convenient Access
vi. Unusually high quality
vii. Threat: Failure to increase buyer willingness to pay higher price, underestimating
cost of differentiation, over fulfillment of buyer’s needs, lower cost imitation
4. Be able to define corporate strategy and its premises.
a. Def: The overall scope and direction of a corporation and the way in which its various
business operation work together to achieve particular goals.
b. Premises:
i. Competition occurs at unit level
ii. Diversification inevitably adds cost and constraints to business units
iii. Shareholders can readily diversify themselves
iv. To succeed, corp. strategy must add value to Business units and shareholders.
5. Know the conditions under which diversification will create shareholder value.
a. The attractiveness test
i. Rate of return on an investment of an industry is the underlying structure that make
the industry attractive.
b. The cost-of-entry test
i. A company can enter new industry by acquis ion or start-up. The more attractive a
new industry, the more expensive it is to get into.
c. The better-off test
i. Asses if competitive advantage brought to parent company or new unit.
Diversification should only be a by-product of corporate strategy, not a prime
motivator.
6. Know and understand the concepts of corporate strategy.
a. Unrelated diversification Strategies
i. Portfolio management
1. Balancing current business activities with new industry acquisitions
2. Undervalued acquisition meets attractiveness and COE test.
ii. Restructuring
1. Seek underdeveloped/sick companies
2. Utilize and pass the 3 tests
3. Ability to find undervalued companies with growth potential
b. Related Diversification Strategies
i. Sharing activities
1. Lower cost and increase differentiation
ii. Transferring Core Competencies
1. Cooperative not compete, on-going infusion, similarities not enough.
 2. Condition 1: Business activities are similar enough that sharing knowledge
would me meaningful
3. Skills must be useful to key business activities
4. Expertise or skills to be transferred must be beyond competitors’
capabilities.
7. Understand how to choose a corporate strategy and how to create a corporate advantage.
a. Identify interrelationships among already existing business units.
b. Select the core businesses that will be the foundation of the corporate strategy.
c. Creating horizontal mechanisms to facilitate interrelationships among the core business
units.
d. Pursuing diversification opportunities that allow shared activities
e. Pursuing diversification through the transfer of skills if opportunities for sharing activities
are limited or exhausted.
f. Pursuing a strategy of restructuration if its fits the skills of management or no good
opportunities exist for forging corporate interrelationships.
g. Paying dividends so the shareholders can be the portfolio managers.
8. Be able to explain why firms compete in international markets.
a. Diversify risks
b. Economy of scale (increase profit by increasing volume and reducing unit cost)
c. Economy of scope (sharing R&D results with our plants in different countries)
9. Know and understand Porter’s Diamond of National Competitive Advantage.
 a.
10. Understand the different international corporate-level strategies that firm can pursue based on
their need for global integration/efficiency and need for local responsiveness.
a. Global Strategy
i. International strategy through which the firm offers standardized products across
country markets, with the competitive strategy being dictated by the home office.
ii. Organizational structure in which decision-making authority is centralized in the
worldwide division headquarters to coordinate and integrate decisions and actions
among divisional business units.
b. Transnational Strategy
i. International strategy through which the firm seeks to achieve both global efficiency
and local responsiveness.
ii. Building a shared vision and individual commitment through an integrated network.
iii. Organizational structure in which characteristics and mechanisms are drawn from
both the worldwide geographic area structure and the worldwide product divisional
structure.
c. Multidomestic Strategy
i. International strategy in which strategic and operating decisions are decentralized
to the strategic business-unit (SBU) in each country to allow the units to tailor
products to local markets.
ii. Organizational structure that emphasizes national interests and facilitates efforts to
satisfy local or cultural differences.
11. Be able to identify the different modes of entry into international markets.
 a.
12. Understand the risks when expanding internationally.
a. Political risks
i. Government instability
ii. Conflict or war
iii. Government regulations
iv. Conflicting and diverse legal authorities
v. Potential nationalization of private assets
vi. Government corruption
vii. Changes in government policies
b. Economic risks
i. Government oversight and control of economic/financial capital.
ii. Weak Intellectual Property (IP) rights protections, impact FDI attractiveness.
 iii. Investment losses due to political risks
iv. Terrorism
v. Security risk of foreign firms acquiring key natural resources or strategic IP.
13. Know and understand the components, the specification and successful action of the theory of the
business.
a. Assumptions about the environment
i. Define what the organization is paid for
b. Assumptions about the specific mission
i. Define an organization’s meaningful results
c. Assumptions about the core competencies needed to accomplish the organization’s mission
i. Define where an organization must excel in order to maintain leadership
d. Assumptions need to fit reality
e. Assumptions have to fit one another
f. Theory of business must be known and understood throughout the organization
g. Theory has to be tested constantly
14. Know and understand the balanced scorecard and its link to strategy.
a. Financial Perspective
i. Measures should define the long-term objectives of the business unit
ii. Business unit stage
1. Rapid growth
2. Sustain
3. Harvest
iii. Three financial themes
1. Revenue growth and mix
2. Cost reduction / productivity improvement
3. Asset utilization / investment strategy
b. Customer Perspective
i. Identify customer and market segments
ii. Generic outcome measures
1. Customer satisfaction
2. Customer retention
3. New customer acquisition
4. Customer profitability
5. Market and account share
c. Internal Business Process
i. Focused on internal processes that have greatest impact on customer satisfaction
and achieving financial objectives
ii. Identifies new processes
iii. Incorporates innovation processes
d. Learning and growth
i. Identifies the infrastructure that the organization must build for long-term growth
and improvement
ii. Three principal sources
1. People
2. Systems
3. Organizational procedures