WCOB 3016 1st Edition Exam 2 Study Guide Chapters 5 7 Chapter 5 Competitive Rivalry and Competitive Dynamics I II III Competitive Dynamics refer to all competitive behaviors the total set of actions and responses taken by all firms competing within a market a Competitors firms operating in the same market offering similar products and targeting similar customers b Competitive Rivalry the ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position c Competitive Behavior the set of competitive responses the firm takes to build or defend its competitive advantages and to improve its market position Competitive Rivalry a Strategic Vs Tactical i Strategic Action or Strategic Response market based move that involves a significant commitment of organizational resources and is difficult to implement or reverse ii Tactical Action or a Tactical Response a market based move that is taken to fine tune a strategy 1 Usually involves fewer resources 2 Is relatively easy to implement and reverse b Competitive Dynamics vs Rivalry i Competitive Dynamics ongoing actions and responses taking place between all firms competing within a market for advantageous positions 1 Market speed slow cycle fast cycle standard cycle 2 Effects of market speed on actions and responses of all competitors in the market ii Competitive Rivalry ongoing actions and responses taking place between an individual firm and its competitors for an advantageous market position 1 Market commonality and resource similarity 2 Awareness Motivation and ability 3 First mover incentives size and quality Competitive Dynamics a Cycles i Slow Cycle competitive advantage shielded and imitation costly ii Fast Cycle competitive advantage not shielded and imitation is not expensive iii Standard Cycle competitive advantage moderately shielded and imitation is moderately costly Chapter 6 Corporate Strategy I II III Corporate Strategy to gain competitive advantage by selecting and managing a group of different businesses competing in different product markets Levels of Diversification a Low Level i Where 95 or more of revenue comes from a single business ii EX Southwest Airlines revenue comes from passenger and cargo services b Dominant Business i 70 95 of revenue comes from a single business ii Not as successful profit wise iii EX Kellogg s revenue comes from primarily breakfast and snack foods c Moderate to High Level i Related Constrained 1 Where less than 70 of revenue comes from the dominant businesses 2 All businesses share product technological and distribution linkages 3 EX Darden owns Red Lobster Olive Garden etc Each of their businesses have their own marketing even though they are owned by the same people ii Related Linked 1 Less than 70 of revenue comes from the dominant businesses 2 There are limited links between businesses 3 EX GE used to be in the small appliance business but it sold to sunbeam Then it created GE finance iii Both of these are successful profit wise d Very High i Unrelated 1 Less than 70 of revenues comes from the dominant business 2 There are no common links between businesses 3 Not as successful profit wise 4 EX United Technologies has many unrelated businesses that it owns Reasons for Diversification a Value Creation i Creating value for your company through economies of scope market power and financial economies ii Strategic Motives IV 1 Economies of Scope Related Diversification Sharing activities and transferring core competencies These activities make you competitive 2 Market Power Related Diversification blocking competitors through multipoint competition and using vertical integration 3 Financial Economies Unrelated efficient internal capital allocation and business restructuring b Value Neutral i To match and neutralize your competitor s market power through tangible and intangible resources tax laws antitrust laws etc c Value Reducing i Reducing managerial risk of losing their job if a diversified company fails Related Diversification a A firm creates value by building upon or extending its resources capabilities and core competencies b Economies of Scope cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its business i Think of it as brainpower ideology or thinking ii Value is created through this through 1 Operational Relatedness sharing activities 2 Corporate Relatedness transferring skills or corporate core competencies among units a The difference between these is based on how the resources are jointly used to create economies of scope c Sharing Activities i Operational relatedness 1 Created by sharing either a primary activity such as inventory delivery systems or a support activity such as purchasing 2 Activity sharing may create risk because business unit ties create links between outcomes d Transferring Corporate Competencies i Corporate Relatedness using complex sets of resources and capabilities to link different businesses through managerial and technological knowledge experience and expertise 1 Pretty much how you take the expertise and transfer that to the part of the business you acquired e Market Power i Market power exists when a firm can 1 Sell its products above the existing competitive level 2 Reduce the costs of its primary and support activities below the competitive level V VI VII ii Multipoint Competition two or more diversified firms simultaneously compete in the same product areas or geographic markets 1 Sometimes multipoint competition drives strategy iii Vertical Integration 1 Backward Integration when a firm produces its own inputs 2 Forward Integration when a firm operates its own distribution system for delivering its outputs f Complexity i A business is simultaneously in operational relatedness and corporate relatedness 1 Must manage two sources of knowledge a Operational forms of economies of scope b Corporate forms of economies of scope Unrelated Diversification Value Creating a Efficient Internal Capital Market Allocation i Corporate office distributes capital to business divisions to create value for overall company 1 Corporate office gains access to information about those businesses actual and prospective performance ii Conglomerates have a fairly short life cycle because financial economies are more easily duplicated by competitors than are gains from operational and corporate relatedness b Restructuring creates