WCOB 3016: TEST 2
59 Cards in this Set
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competitors
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same market offering similar products to similar customers
e.g. Pepsi & Coca-Cola
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competitive rivalry
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set of competitive actions & responses while maneuvering for CA
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set of competitive actions & responses while maneuvering for CA
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Recession
customers change buying behavior
look for ways to escape daily neg environment (e.g. movie ticket sales^, candy consumption^)
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competitive behavior
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competitive behavior
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competitive dynamics
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ALL competitive behaviors; total set of actions & responses taken by all firms competing w/in a mkt
to gain mkt position (actions & responses)
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multimarket competition
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firms competing in several product or geographic markets
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How does a firm with greater Multimarket contact attack/respond to competitors?
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less likely to initiate an attack, BUT more likely to respond aggressively when attacked
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less likely to initiate an attack, BUT more likely to respond aggressively when attacked
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2 components of Competitor Analysis
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Market Commonality: # of mkts which a firm & competitor are jointly involved & imp. of each
Resource Similarity: how comparable firm's tangible/intangible resources are to competitor's (in terms of both types & amts)
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Competitve Analysis (figure)
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Drivers of Competitive Behavior
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Awareness: recog degree mutual interdependence
Motivation: incentive to take action/respond
Ability: resources/their flexibility, w/o can't A/R
Market Commonality: more likely to attack rival w/ low mc, given strong mc attacked firm likely resp
Resource Dissimilarity:greater = greater…
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Framework of Competitor Analysis
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Q: To what extent are firms competitive?
high mkt commonality & high resource similarity = direct competitors
e.g. Dell & HP
direct competition does NOT always imply intense rivalry
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Strategic Action or Strategic Response
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market-based move that involves a SIGNIFICANT COMMITMENT of org resources & is DIFFICULT TO IMPLEMENT OR REVERSE
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Tactical Action or Tactical Response
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market-based move that is taken to FINE-TUNE A STRATEGY
usually fewer resources
relatively easy to implement or reverse
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Likelihood of Attack
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First-mover incentives
Second mover
Late mover
Organizational size (sm or lg)
Quality (product or service)
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Likelihood of Response
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Type of competitive action (strategic or tactical)
Actor's reputation (pos or neg)
Dependence on mkt (high or low)
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Competitive Dynamics vs. Competitive Rivalry
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Dynamics (all firms):
Mkt speed (slow-cycle, fast-cycle, std-cycle)
Effects of mkt speed on A/R's of all competitors
Rivalry (individual firms):
Mkt commonality & Resource Similarity
Awareness, Motivation, & Ability
First-mover incentives, size, & quality
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Cycles (Market Speed)
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Slow-cycle: CA shielded, imitation costly
Fast-cycle: CA not shielded, imitation not expensive
Standard-cycle: CA moderately shielded, imitation moderately costly
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Corporate Strategy
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to gain a CA by selecting & managing a group of different businesses competing in different product markets
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2 Key Issues (corporate-level strategy)
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In what product mkts & businesses should the firm compete?
How should corporate headquarters manage those businesses?
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4 Corporate Level Strategies:
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1. Market development - existing products in new mkts
2. Product development - new/improved products in existing mkt
3. Horizontal integration - acquire competitors; same pt in value chain
3. Vertical integration - acquire means to become own supplier/distributor; up/down value c…
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Diversification
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growing into new business areas either related or unrelated
*allows firm to create value by productively using excess resources
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Low Level Diversification
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Single business - 95% or more of rev = single business (e.g. SW Airlines, Wrigley)
Dominant business - 70-95% of rev = single business (e.g. Kellogg's, UPS)
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Moderate to High Level Diversification
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Related Constrained - less than 70% of rev = dominant businesses; ALL businesses share product, tech, & distribution linkages (e.g. Darden, P&G, Cambell Soup, Merck & Co.)
Related Linked - less than 70% of rev = dominant businesses; LIMITED links b/w businesses (e.g. General Electric)
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Very High Diversification
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Unrelated - less than 70% of rev = dominant businesses; NO common links b/w businesses
(e.g. United Technologies, Textron, Samsung, Hutchison Whampoa Limited - HWL)
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Diversification Profitability
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Curvalinear Relationship
Less Successful = Dominant & Unrelated
Most Successful = Related Diversification
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3 Reasons for Diversification
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value-creation
value-neutral
value-reducing
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Value-Creation (motives for diversification)
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To enhance strategic competitiveness:
Economies of Scope (related): sharing activities, transferring core competencies
Market Power (related): blocking competitors thru multipoint competition, vertical integration
Financial Economies (unrelated): efficient internal capital allocation
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Value-Neutral Diversification (motives for diversification)
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Antitrust Laws
Tax Laws
Low Performance
Uncertain future
Risk Reduction
Tangible Resources
Intangible Resources
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Value-Reducing (reasons for diversification)
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Diversifying Management employment risk
Increasing Management Compensation
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Related Diversification
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Firm creates value by building or extending its: Resources, Capabilities, Core Competencies
Economies of Scope
Sharing Activities (operational relatedness)
Transferring Core Competencies (corporate relatedness)
Market power
Complexity
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Economies of Scope (related diversification)
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Value created from EOS thru:
Operational Relatedness in sharing activities
Corporate Relatedness in transferring skills or corporate core competencies among units
*Diff b/w sharing activities & transferring competencies is based on how resources are jointly used to create EOS
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Sharing Activities (related diversification)
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operational relatedness:
created by sharing either a primary activity (e.g. inventory delivery systems) or a support activity (e.g. purchasing)
requires strategic control over business units
may create risk bc business-unit ties create links b/w outcomes
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Transferring Corporate Competencies (related diversification)
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corporate relatedness:
using complex sets of resources & capabilities to link diff businesses thru managerial & technological knowledge, experience, & expertise
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Market Power (related diversification)
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-Multipoint Competition: 2 or more diversified firms firms compete in same product areas or geo mkts
-Vertical Integration: BACKWARD - firm produces own inputs, FORWARD - firm operates own distribution system for delivering outputs
-Complexity: simultaneous operational & corporate relat…
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market power exists when a firm can:
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-sell its products above the existing competitive level &/or
-reduce costs of its primary & support activities below the competitive level
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Unrelated Diversification
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Financial economies: cost savings thru improved capital allocations; create value thru 2 types:
Efficient internal capital mkt allocation
Business restructuring
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Efficient internal capital market allocation (unrelated diversification)
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corporate office distributes capital to business divisions to create value for overall co. (corporate office gains access to business' actual/perspective performance)
conglomerates have fairly short life cycle bc financial eonomies are more easily duplicated by competitors than are gains…
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Business Restructing (unrelated diversification)
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Creates financial economies: firm creates value by buying & selling other firms' assets in external mkt
Resource allocation decisions may be complex, so success often requires:
focus on mature, low-technology businesses
focus on businesses not reliant on a client orientation
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Value-Creation strategies of diversification: Operational & Corporate Relatedness
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Value-Neutral Diversification
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Incentives:
External - antitrust regs, tax laws
Internal - low performance, uncertain future cash flows, synergy & firm risk reduction
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Value-Reducing Diversification
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Managerial motives:
managerial risk reduction
desire for increased compensation
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Summary of Relationship b/w Diversification & Firm Performance
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Value-creating influences = Resources
Value-neutral influences = Incentives
Value-Reducing influences = Managerial Motives
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merger
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2 firms agree to integrate their operations on a relatively co-equal basis
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acquisition
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one firm buys a controlling (or 100%) interest in another firm w/ the intent of making the acquired firm a subsidiary business w/in its portfolio
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takeover
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special type of acquisition when target firm did not solicit the acquiring firm's bid for outright ownership
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hostile takeover
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unfriendly takeover that is undesired by the target firm
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7 reasons for acquisitions
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•Increase Market Power
•Overcome Entry Barriers
•Cost of New Development/Increased Speed to Market
•Lower Risk Compared to Developing New Products
•Increased Diversification
•Reshaping Competitive Scope
•Learning and Developing New Capabilities
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increase market power
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Horizontal acquisitions
e.g. HP buying Compaq, Coca-Cola buying Glaceau
Vertical acquisitions
e.g. FedEx/Kinko's, UPS/Mailboxes Etc.
Related acquisitions
Boeing/McDonnell Douglas/Rockwell
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overcoming entry barriers
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SAB/Miller
Inbev/Budweiser
Cross Border acquisitions:
Walmart into Mexico
HEB into Mexico
UPS overseas - acquires local co.
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cost of new product development/increased speed to market
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Pharmaceutical industry
Merck - develops products internally
Pfizer & GlaxoSmithKline grow thru acquisitions
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lower risk compared to developing new products
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•Pharmaceuticals are best example
•Pepsi acquiring Quaker Oats/Gatorade
•Defense Contractors
–Why develop technology when you can buy it for less?
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increased diversification
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•Both related and unrelated – reduces risk
•Conglomerates
–Tyco
–GE
–United Technologies
–Goodrich
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reshaping firm's competitive scope
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•Reducing firm’s dependence on specific markets alters firm’s competitive scope
–HP/Compaq
–GE moving from electronics into services
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learning & developing new capabilities
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•FedEx acquiring American Freightways and Roadway Package Service
•Northrop acquiring Litton, TRW and Newport News Shipbuilding
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7 problems with acquisitions
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•Integration Difficulties
•Inadequate Evaluation of Target
–Due Diligence
•Large Debt – Paying Too Much
•Inability to Achieve Synergy
•Too much Diversification
•Managers Overly-focused on Acquisitions
•Too Large
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7 effective acquisitions
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•Complementary Assets
•Friendly Acquisition
•Careful Selection
•Financial Slack
•Low Debt
•Sustained R & D
•Experienced with Change
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restructing
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•Downsizing
•Downscoping
•Leveraged Buyouts
–Take firm private
–Sale of Assets
–Management Buyout
–Employee Buyout
–Whole Firm Buyout
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restructuring & outcomes (figure)
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WCOB 3016: TEST 1