Business Plans Explained
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Questions and Answers

Why do they make business plans?

  1. funding
  2. communication purposes
  3. helping you to speed up descision making

Why won't you make business plans?

  • Limited resources, time pressure
  • You don't know the market yet, you better start experimenting

  • Two opposing theoretical perspectives:

  1. BP fosters firms’ development due to increased decision speed and more efficient resource utilization.
  2. BP prevents dedicating time to activities such as acquiring resources or organizational development (Bhide, 2000).

What approach are they using and why?

<p>Evidence Based Approach, to overcome limitations of individual findings and narrative reviews. This can suffer from biases and stereotypes.</p> Signup and view all the answers

What are the 3 moderating factors?

<ol> <li>the development stage of the firm</li> <li>the form of business planning undertaken</li> <li>the cultural context in which the planning-performance relationship occurs (a country's level of uncertainty avoidance (UA)</li> </ol> Signup and view all the answers

Why did Brinckmann et al. (2010) use a meta-analysis to examine the business planning-performance relationship in small firms?

<p>They used a meta-analysis to synthesize prior empirical evidence, which provides a systematic and evidence-based approach to assess the overall effect size and direction of the business planning-performance relationship across different contexts. Meta-analysis also helps overcome biases and limitations found in individual studies.</p> Signup and view all the answers

Under which circumstances is business planning not beneficial for small firms, according to Brinckmann et al. (2010)?

<p>Business planning is less beneficial when firms face</p> <ol> <li>when firms face high uncertainty,</li> <li>lack market information,</li> <li>operate in cultures with high uncertainty avoidance</li> </ol> Signup and view all the answers

What is causation?

<p>managerial thinking, selecting between given means to achieve a pre-determined goal.</p> Signup and view all the answers

what is effectuation?

<p>entrepreneurial thinking, imaging a possible new end using a given set of means.</p> Signup and view all the answers

The 5 basic principles of effectuation

<ol> <li>Bird in hand: entrepreneurs seeking to build new venture start with their given means</li> <li>Affordable loss: entrepreneurs decide what they are willing to lose rather then what they expect to make</li> <li>Lemonade: entrepreneurs learn not only to work with surprises, but also take advantage of them.</li> <li>Crazy quilt: focus on building partnerships rather than beating competitors</li> <li>Pilot on the plane: entrepreneurs should focus on controllable aspects in their environment</li> </ol> Signup and view all the answers

What was the traditional view of internalization?

<p>Process theory of internationalization (PTI), internationalization as a process in which firms incrementally increase their international involvement.</p> Signup and view all the answers

What is the new theory?

<p>International new venture theory (INV), Specific new ventures do not follow incremental internationalization patterns</p> Signup and view all the answers

What are the three moderating factors that influence the survival and growth of early internationalizing firms?

<ol> <li>Age at internationalization: Younger firms face higher risks due to lack of resources and experience.</li> <li>Managerial experience: Experienced managers can better navigate the complexities of internationalization.</li> <li>Resource fungibility: Firms with flexible resources that can be deployed in different contexts have a better chance of survival and growth.</li> </ol> Signup and view all the answers

What challenges do older firms face when entering new markets?

<ol> <li>Structural inertia and rigidities</li> <li>Their capability development costs are also higher.</li> </ol> Signup and view all the answers

What is the S-curve hypothesis, and how does it describe the relationship between multinationality and firm performance?

<p>The S-curve hypothesis suggests that the relationship between multinationality and firm performance follows an S-shape. Initially, performance declines due to the costs and challenges of entering new markets. As firms gain experience and overcome liabilities of foreignness, performance improves. However, beyond a certain level of diversification, performance may decline again</p> Signup and view all the answers

What are intangible assets, and how do they moderate the benefits of international diversification for firms?

<p>The tangible assets are: resources like</p> <ol> <li>technological know-how,</li> <li>patents,</li> <li>management skills,</li> <li>brand reputation</li> </ol> <p>These assets positively moderate the benefits of international diversification by allowing firms to realize greater scale and scope economies.</p> Signup and view all the answers

How do intangible assets differ from tangible assets in terms of their impact on firm performance during international expansion?

<p>Unlike tangible assets, which are location-specific and depreciate over time, intangible assets (such as technology and managerial expertise) are not bound by geography and do not lose value when used across multiple markets. This allows firms to scale more efficiently during international expansion, enhancing the performance outcomes from diversification.</p> Signup and view all the answers

How to grow?

<ol> <li>Acquisition: Full or partial purchase of an existing firm’s equity</li> <li>Greenfield investment: Firm builds a new subsidiary from scratch</li> </ol> Signup and view all the answers

Why is cultural distance (CD) between home and host countries important when considering entry mode choices? (5 credits)

<p>Cultural distance creates information deficits and increases risks in market entry. In cases of high cultural distance, firms are more likely to choose acquisitions to mitigate risks by leveraging local knowledge.</p> Signup and view all the answers

What are the two types of resources that influence a firm’s choice between acquisition and greenfield investment? (5 credits)

<ol> <li>knowledge-based resources (e.g., technological know-how, patents) and</li> <li>experience-based resources (e.g., prior international experience).</li> </ol> <p>Firms with higher knowledge and experience tend to prefer greenfield investments.</p> Signup and view all the answers

What is the Resource-Based View (RBV), and why is it important for a firm’s growth strategy? (5 credits)

<p>The RBV suggests that firms can achieve sustainable competitive advantage by leveraging valuable, rare, inimitable, and non-substitutable (VRIN) resources. These resources enable firms to create long-term superior performance.</p> Signup and view all the answers

How does the VRIN framework apply to a firm’s choice between acquisition and greenfield investment? (5 credits)

<p>Firms with VRIN resources are more likely to choose greenfield investments to exploit their unique resources in new markets. Firms lacking VRIN resources might choose acquisitions to quickly gain access to local resources and knowledge.</p> Signup and view all the answers

What are the three types of interdependence as defined by Thompson (1967), and how do they influence coordination?

<p>Pooled interdependence: Each unit performs independently, contributing to overall organizational goals. Sequential interdependence: Tasks are performed in a sequence, with one unit depending on the output of another. Reciprocal interdependence: There is mutual interdependence between units, requiring continuous feedback and adjustments.</p> Signup and view all the answers

What is post-merger integration, and how can it negatively impact the innovative capabilities of the acquired organization?

<p>Post-merger integration refers to the combination of formerly distinct organizational units into one following an acquisition. It can destroy the innovative capabilities that made the acquired organization attractive by altering valuable organizational routines.</p> Signup and view all the answers

What are the short-term and long-term costs associated with structural integration in technology acquisitions?

<p>Short-term costs include the processes by which structural integration is achieved, while long-term costs include the loss of autonomy, lower productivity, motivation, and free-riding, which can alter valuable routines and weaken innovative capabilities.</p> Signup and view all the answers

What is the role of common ground in post-merger integration, and how does it provide an alternative to structural integration?

<p>Answer: Common ground refers to shared knowledge, beliefs, or experiences between acquiring and acquired firms. It provides an alternative to structural integration by enabling informal coordination through shared understanding, avoiding the disruptions caused by formal integration.</p> Signup and view all the answers

How does agency theory explain the negative effects of structural integration on employee motivation and productivity?

<p>Answer: Agency theory suggests that structural integration weakens the link between individual effort and rewards due to the larger number of agents involved, leading to free-riding and reduced productivity.</p> Signup and view all the answers

Why is it always difficult to make money with innovation?

<ol> <li>R&amp;D (research and development) has a cost</li> </ol> <ul> <li>Profits shared by the innovator and fast followers</li> <li>R&amp;D cost incurred primarily by the innovator</li> </ul> <ol start="2"> <li>Pioneering may have its disadvantages</li> </ol> <ul> <li>Most first movers are solutions in search of a market</li> <li>Nobody gets it right the first time</li> <li>Fast-followers and late entrants enjoy all the free iterative learning that happens while the first mover is: o Distracted by providing customer support o Burning its brand due to quality issues and feature-needs mismatches</li> </ul> <ol start="3"> <li>(the suggestion of) imitation at favorable prices</li> </ol> <ul> <li>Is it fake or real?</li> </ul> <ol start="4"> <li>The lack of complementary assets: the PFI framework (Teece, 1986)</li> </ol> Signup and view all the answers

What is an appropriability regime, and how does it influence an innovator’s ability to capture value from innovation?

<p>An appropriability regime refers to the ability to protect an innovation from being copied or used by others. A strong appropriability regime allows the innovator to retain a large share of the value generated from the innovation, offering them significant bargaining power in the value chain.</p> Signup and view all the answers

What is the PFI framework, and how does the lack of complementary assets affect the success of innovation?

<p>The PFI (Profiting from Innovation) framework emphasizes the importance of complementary assets such as manufacturing, sales, and distribution in determining whether a firm profits from innovation. Without these assets, even strong innovations may struggle to generate profits, as the firm may lack the necessary infrastructure to bring the innovation to market effectively.</p> Signup and view all the answers

How does bargaining power in the supply chain affect the distribution of profits from innovation?

<p>Bargaining power in the supply chain, as discussed by Pisano &amp; Teece (2007), allows innovators to retain a larger share of the value from innovation. When a firm has strong control over essential components or resources, it can negotiate favorable terms and capture more profits.</p> Signup and view all the answers

What are the differences between formal and informal IP protection mechanisms, and when would a firm choose one over the other?

<p>Formal IP protection includes patents, copyrights, and trademarks, which provide legal rights and protection. Informal IP protection involves strategies like trade secrets, complexity, and lead-time advantages. A firm might choose formal protection when the innovation is easily replicable or when legal enforcement is feasible, whereas informal protection is often used when innovations are complex and difficult to reverse-engineer.</p> Signup and view all the answers

Explain how search breadth and depth in open innovation influence the use of formal and informal appropriation measures.

<p>According to Zobel et al. (2017), increased search breadth and depth are associated with a higher likelihood of using informal appropriation measures, as openness in innovation increases risks of imitation. Firms with broad searches tend to use formal appropriation measures like patents to protect their innovations.</p> Signup and view all the answers

In the context of innovation, what is the difference between incremental and radical innovation, and how do they affect the use of appropriation measures?

<p>Incremental innovations provide minor improvements and are typically easier to protect with informal measures. Radical innovations create new knowledge and are more likely to use formal measures like patents due to their transformative nature and the need for strong protection against imitation.</p> Signup and view all the answers

Why did Merck collaborate with Washington University to create a public database of expressed human sequences, and how did this decision relate to appropriability regimes?

<p>Merck collaborated to create a public database as a strategic move to prevent the privatization of key genes that could block future research. This preemptive action was designed to alter the appropriability regime, ensuring that other firms could not claim exclusive rights to genes that Merck wanted to study for cardiovascular drugs.</p> Signup and view all the answers

What are stakeholders and what is stakeholder management?

<p>Stakeholder = Individual, group, or organization that has direct or indirect stake in an organization because they can affect or be affected by the organization's actions, objectives, and policies.</p> <p>Stakeholder management = building relationships</p> Signup and view all the answers

What is a shareholder?

<p>Shareholder = Individuals or institutions (including corporations) that legally own any part of a share of stock in a public or private corporation.</p> Signup and view all the answers

Milton Friendman’s traditional view of a firm

<ul> <li>Primary goal of a firm is profit maximization, not spending shareholder money for general societal interest.</li> <li>Shareholders are the firm’s economic engine and the only group to which the firm must be socially responsible.</li> <li>Firms return a portion of their profits to their shareholders as a risk reward.</li> <li>Shareholders can decide for themselves what social initiatives to support (instead of having appointed (for business reasons) executives decide for them).</li> </ul> Signup and view all the answers

Stakeholder theory (Freeman, 1984)

<ul> <li>Challenges the conventional market capitalist view of the firm.</li> <li>Firms cannot maximize (discounted) value if they ignore the interests of their stakeholders.</li> <li>Firms rely on the contribution of a much wider set of constituents (besides its shareholders).</li> <li>Firms need to take the interests of these stakeholders (including shareholders) into account to ensure sustainable profitability and survival.</li> </ul> Signup and view all the answers

Identifying and managing stakeholders: Porter’s five forces

<ul> <li>Potential entrants</li> <li>Buyers</li> <li>Substitutes</li> <li>Suppliers</li> <li>Stakeholders</li> </ul> Signup and view all the answers

Three types of stakeholder theory (Donaldson and Preston, 1995)

<ol> <li>Descriptive: to what extent managers do in fact attend to various stakeholders and act in accordance with their interests?</li> <li>Normative: explores whether managers ought to attend to stakeholders other than shareholders, and if so, on what grounds these various stakeholders have justifiable claims on the firm?</li> <li>Instrumental: delineates and investigates the consequences that follow from attending to a range of stakeholders</li> </ol> Signup and view all the answers

What is meant by the term "firm as a nexus of contracts"?

<p>The firm as a nexus of contracts refers to the idea that a company is essentially a collection of contracts between different stakeholders, such as employees, suppliers, customers, and investors. These contracts define the roles, responsibilities, and relationships among the parties involved in the firm's operations.</p> Signup and view all the answers

Normative reasons to respect stakeholders

<ul> <li>Employee dignity and self-efficacy (Shklar, 1991; Hodson, 2001)</li> <li>Principles of fairness and reciprocity (Appelbaum, 1996; Philips, 2003)</li> <li>Fundamental rights (Donaldson and Preston, 1995)</li> <li>Respect for the intrinsic worth of human beings (Donaldson and Dunfee, 1999)</li> </ul> Signup and view all the answers

Two avenues of intellectual response to remove the antinomy:

<ol> <li>Invalidation;</li> <li>Reconcilliation</li> </ol> Signup and view all the answers

Five areas of inquiry invite descriptive research

<ol> <li>Appraising the stimuli: Which social ills garner attention by which firms?;</li> <li>Generating response options: How do firms generate response options? (behavioral or cognitive approach)</li> <li>Evaluating options: what assessment criteria are applied to corporate efforts to ameliorate social ills?</li> <li>Implementation: How do firms implement responses to social misery? (e.g. equivocal, ambivalent or ambidextrous responses, or make, buy or ally)</li> <li>Consequences: How do corporate</li> </ol> Signup and view all the answers

What are the three key factors that determine when a company has a duty to respond to social or environmental problems?

<p>It contributes to the conditions that necessitate a response. It benefits from deleterious or unjust conditions. The duty of beneficence applies, meaning that the company should aid others to the extent that would be required if everyone complied with the duty to aid others.</p> Signup and view all the answers

What are the response types a company might have, and how do they differ?

<p>Equivocal: Responses that are unclear or ambiguous. Ambivalent: Responses that reflect mixed feelings or contradictory attitudes toward the issue. Ambidextrous: Responses that attempt to balance or address two opposing factors simultaneously, such as social and financial performance.</p> Signup and view all the answers

What is the instrumental theory (ist)

<p>the core hypothesis of IST is that developing stakeholder relationships governed by the norms of traditional ethics –for example fairness, trustworthiness, loyalty, care, and respect- will lead to improved financial performance.</p> Signup and view all the answers

What is the missing thing in the IST?

<p>ST is a powerful theory with strong prescriptive and normative conclusions, the IST literature has failed to answer a vital question: If the performance effects of ethical relationships with stakeholders are positive, according to both theory and empirical studies, why do so many firms treat stakeholders selfishly at best and unethically at worst?</p> Signup and view all the answers

What is the difference between Arm's Length Relationship and Integrated Relationship?

<p>Arm’s Length Relationship: This is a loose relationship between companies, characterized by low relational investment and trust, usually taking the form of discrete transactions with no/few expectations of future interactions or services. Integrated Relationship: This is a tightly connected relationship between companies, with linked processes across firm boundaries, high levels of trust, and inter-firm commitment.</p> Signup and view all the answers

How can a CSRE-strategy lead to a Close Relationship Capability and sustainable competitive advantage?

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What is reciprocity?

<p>basically the engine of creating value of the relationship with stakeholders</p> Signup and view all the answers

what is legitimation?

<p>.... the self-interested maximizer of economic theory ‘who grabs what he can for himself, is an inaccurate depiction of typical behavior’. Instead most people assess the fairness of others and reciprocate by (1) rewarding those they deem fair, and (2) incurring costs to punish those they deem unfair.</p> Signup and view all the answers

What does the concept of bounded self-interest (homo reciprocans) imply about human behavior in terms of utility maximization and reciprocity?

<p>Bounded self-interest, as embodied by the concept of homo reciprocans, suggests that while people aim to maximize their utility, they do so within the bounds of reciprocity. This means they follow the norm of reciprocity by rewarding fair behavior and punishing unfair behavior, rather than acting purely out of self-interest, as depicted by the homo oeconomicus.</p> Signup and view all the answers

How does the principle of reciprocity of fairness serve as the engine of value creation in firms?

<p>The principle of reciprocity of fairness suggests that firms create value by distributing it to stakeholders who act fairly. The fairness exhibited by stakeholders encourages reciprocal behavior from the firm, thus leading to ongoing value creation. This distribution can take various forms, such as providing stakeholders with an extra day off, and involves different types of fairness, including distributive fairness (ensuring a fair share), procedural fairness (following consistent processes), and interactional fairness (ensuring respectful treatment).</p> Signup and view all the answers

What is the difference between a Communal Sharing Relational Ethics (CSRE) strategy and an Arm’s-Length Relational Ethics (ALRE) strategy?

<p>A CSRE strategy focuses on relational contracts, joint wealth creation, high levels of mutual trust, cooperation, and communal sharing of property. It aims to build close, cooperative relationships with stakeholders. An ALRE strategy, on the other hand, is based on arm’s-length relationships where interactions with stakeholders follow formal agreements, with less relational investment and trust. The relationship is characterized by discrete transactions with minimal expectations for future interactions.</p> Signup and view all the answers

What is Service-Dominant Logic, and how does it apply to self-service? (Vargo & Lusch)

<p>“Value is created with the customer through a unique combination of the customer’s and the provider’s resources”</p> Signup and view all the answers

  • Media Richness Theory (Daft and Lengel 1986)

<p>“According to MRT, media can be characterized by their ability to convey communicative cues, give immediate feedback, support language variety, and allow personalization.”</p> <p>“Users relying on lean media for complex and ambiguous tasks should encounter a lower outcome-quality”.</p> Signup and view all the answers

  • Channel Expansion Theory (Carlson and Zmud 1999)

<p>“A user’s perceived richness of a medium depends not only on its characteristics, but also on the user’s unique experience with it”</p> Signup and view all the answers

Two value propositions are compared...

<ol> <li>Technology based self-services</li> </ol> <ul> <li>Technology-based self-service channels entail a mere interaction between customer and technology.</li> <li>Technology-based self-service channels do not support directed and dyadic communication between customer and service provider representatives.</li> <li>Customers are not only cocreators of value in self-service channels, but also active coproducers of the core offering itself.</li> <li>Self-service channels are rather lean, highly standardized, and do not include personalized attention to customer needs.</li> </ul> <ol start="2"> <li>Personal services</li> </ol> <ul> <li>Personal service channels always involve the presence of a service provider representative and entail a direct interaction and communication between customer and service employee.</li> <li>Once humans are aware of a human communication partner in a technology mediated encounter, they have been shown to act more sociably, show more mirth, and spend more time on a task.</li> <li>Personal service channels also offer social benefits for customers in terms of familiarity, personal recognition, friendship, and social support.</li> </ul> Signup and view all the answers

How do self-service and personal service channels impact a customer’s relationship with a service provider, and what three factors should be considered when evaluating this impact?

<ol> <li>Individual characteristics and resources of the customer — For instance, customers who are more self-efficient may prefer self-service, while those who seek trust or human interaction may favor personal service.</li> <li>Resource requirements of the task — Simple, repetitive tasks might suit self-service, whereas complex, ambiguous tasks require personal service.</li> <li>Unique capabilities of the service channel — Self-service excels in efficiency and accessibility, while personal service offers richer, more personalized interactions.</li> </ol> Signup and view all the answers

What should managers do to avoid the potential drawbacks of technology-based self-service channels, especially when customers are new to a provider?

<p>Managers should ensure that customers experience their relationship with a provider through a variety of service channels, not solely relying on technology-based self-service. This is especially important when customers are new to the provider, to avoid the negative consequences of exclusively pushing them to self-service options.</p> Signup and view all the answers

What is a self-service technology (SST)?

<p>Self-service technology (SST) refers to technological interfaces that allow customers to perform services on their own without the assistance of an employee, such as self-checkout kiosks or online portals.</p> Signup and view all the answers

How does self-monitoring behavior affect customer preferences during SST failure recovery?

<p>Self-monitoring behavior refers to how customers adjust their behavior based on social situations. When customers are aware of others around them during an SST failure, they may prefer the employee to fix the issue but allow them to finish the transaction to avoid social embarrassment.</p> Signup and view all the answers

What are the main findings from the studies on SST failure recovery?

<p>Customers prefer employees to fully take over a transaction if the failure occurs in isolation. If other customers are present, they prefer the employee to simply fix the issue and let them complete the transaction themselves.</p> Signup and view all the answers

What managerial implications are suggested by the research?

<p>Managers should recognize the influence of the social environment on SST failure recovery and allocate employee resources accordingly. Situational awareness and flexibility are essential to ensure customers experience minimal embarrassment, leading to a better self-service experience.</p> Signup and view all the answers

What is diversification?

<p>a corporate strategy to enter into a new market or industry which the business is not currently in, whilst also creating a new product for that new market.</p> Signup and view all the answers

Why do firms pursue a diversification strategy?

<ol> <li>Risk Reduction: Diversification spreads risk by expanding into different industries or markets. This minimizes the impact of adverse conditions in any single sector.</li> <li>Revenue Growth: By entering new markets or offering new products, firms can tap into additional revenue streams, fostering growth even when their core business may be stagnant.</li> <li>Leveraging Core Competencies: Firms often diversify to leverage existing strengths, such as technology, brand reputation, or supply chain efficiencies, in new areas where those competencies can offer a competitive edge.</li> <li>Synergies: Diversification can create cost synergies by combining resources, expertise, or technologies across business units, leading to economies of scale and enhanced profitability.</li> <li>Market Power: Expanding into different sectors can increase a firm's bargaining power over suppliers and customers, providing a stronger market position.</li> <li>Responding to Competition: Firms may diversify to preempt competitors from dominating adjacent markets, or as a countermeasure to competitors’ diversification strategies.</li> <li>Utilizing Excess Resources: If a firm has excess financial or human resources, diversification allows it to put those resources to productive use, increasing overall efficiency.</li> <li>Long-term Stability: A diversified portfolio of businesses can help smooth out income fluctuations over time, ensuring long-term financial stability, especially in cyclical industries.</li> </ol> Signup and view all the answers

What are some of the risks associated with diversification for firms, and why is it important for firms to carefully assess when and how to diversify?

<p>Risks associated with diversification include the dilution of management focus, inefficiencies from operating in unfamiliar industries, and potential loss of strategic coherence. Firms need to carefully assess when and how to diversify to avoid these risks and ensure their diversification efforts contribute positively to their overall strategy and performance.</p> Signup and view all the answers

Why do Firms Diversify?

<p>• When they have excess resources, capabilities, and core competencies that have multiple uses • Diminishing growth prospects in present industry • Cost saving opportunities • Capture strategic fits • Capture financial economies • Spread business risk • Leverage brand name</p> Signup and view all the answers

What types of diversification and vertical integration strategies has Oracle employed according to the diagram, and how do they relate to Oracle’s core business of enterprise software?

<p>The diagram shows that Oracle has pursued both related and unrelated diversification as well as backward and forward vertical integration. Related diversification includes acquisitions like Sophori and IP Management for Media and Entertainment, which are connected to Oracle’s core business of enterprise software. Unrelated diversification includes the acquisition of Bharosa for online identity theft and fraud protection, which is less directly connected to their core business. Oracle’s backward vertical integration includes the acquisition of Sun Microsystems, bringing hardware production in-house, and forward vertical integration involves acquiring companies like PeopleSoft, which expands their offerings into HRMS and CRM software.</p> Signup and view all the answers

What are economies of scope, and can you give examples of how companies expand the variety or scope of their activities?

<p>Economies of scope exist when a firm expands the variety or scope of its activities, leading to cost efficiencies. Examples include:</p> <p>A lumber company selling chipped bark for lawn decoration. A finance company using its financial data to produce marketing reports. A slaughterhouse inventing hot dogs from leftover meat.</p> Signup and view all the answers

Strategic fit ....

<p>expresses the degree to which an organization is matching its resources and capabilities with the opportunities in the external environment.</p> Signup and view all the answers

What are the three tests that a diversification move must pass to build shareholder value?

<p>The industry attractiveness test The cost-of-entry test The better-off test</p> Signup and view all the answers

What are the two additional decisions required when deciding to diversify?

<p>The level and degree of diversification The mode of diversification</p> Signup and view all the answers

What is related diversification, and how can it benefit a company?

<p>Related diversification means there is a technological similarity between the industries. The company can leverage its technical know-how to gain synergies, appealing to new customers.</p> Signup and view all the answers

What is the strategic appeal of related diversification?

<p>Capturing strategic fits/synergies Achieving cost reductions Spreading investor risks Preserving strategic unity Achieving consolidated performance</p> Signup and view all the answers

What is unrelated diversification, and how does it differ from related diversification?

<p>Unrelated diversification involves businesses with no strategic fit, value chain relationships, or unifying theme. The approach focuses on profits, regardless of the industry.</p> Signup and view all the answers

What does the research by Chatterjee and Wernerfelt (1991) conclude about the link between resources and diversification types?

<p>Firms with intangible assets engage in more related diversification, and there’s no association between the ability to raise equity capital and the type of market entered.</p> Signup and view all the answers

What are the three market power advantages associated with diversification?

<p>Predatory pricing Cross-subsidization Constructing a reputation for predatory behavior</p> Signup and view all the answers

What are internal market efficiencies in diversification?

<p>Greater flexibility in capital formation, the ability to allocate investment more cheaply than external sources, and internal capital markets.</p> Signup and view all the answers

What are some potential disadvantages of diversification?

<p>Strain on top management, internal capital market inefficiencies, incompatible technologies, and increased coordination costs.</p> Signup and view all the answers

What does the research by Andreou et al. (2016) find regarding diversification performance?

<p>Diversification can destroy shareholder value, especially for single-business firms that diversify once, but multiple diversifications may lead to value premiums.</p> Signup and view all the answers

What are the advantages of internal growth compared to acquisitions when diversifying?

<p>Internal growth leads to higher valuations compared to acquisitions, especially in diversified firms.</p> Signup and view all the answers

The linear model rests upon three assumptions

<ol> <li>Market power advantages, through:</li> </ol> <ul> <li>Predatory pricing;</li> <li>Cross subsidization; o A firm with deep pockets uses its asymmetric financial strength to drive a rival with shallow pockets from the market.</li> <li>Constructing a reputation for predatory behavior, which may also deter market entry;</li> <li>Reciprocal buying and selling.</li> </ul> <ol start="2"> <li>Internal Market Efficiencies The diversified firm has much greater flexibility in capital formation:</li> </ol> <ul> <li>Access to external sources as well as internally generated resources;</li> <li>The head-office can allocate investment cheaply and efficiently (vis-à-vis external sources), directing capital away from slow-growing, cash generating operations.</li> <li>This is especially true for relatively new ventures which lack a track record and for which limited information is available to external resources.</li> <li>However, to what extent may managers be drawn to overinvest in undeserving projects?</li> </ul> <ol start="3"> <li>Other advantages</li> </ol> <ul> <li>Excess firm-specific assets that cannot be sold, e.g. brand reputation;</li> <li>Tax and financial benefits associated with diversification: financial synergies;</li> <li>Portfolio effects &gt; risk reduction &gt; decreases the costs of capital &gt; further tax advantages.</li> </ul> Signup and view all the answers

The inverted-U model

<p>Focused businesses do not enjoy scope economies:</p> <ul> <li>Marketing economies of scope;</li> <li>Production economies of scope;</li> <li>Share R&amp;D facilities;</li> <li>Asset amortization (Markides and Williamson, 1994);</li> </ul> <p>Not only benefits accrue to diversification:</p> <ul> <li>Growing strain on top management;</li> <li>Different dominant logics &gt; increasing coordination costs</li> <li>Internal capital market inefficiencies &gt; decreasing responsiveness</li> <li>Incompatible technologies</li> <li>Marginal costs of diversification increase rapidly</li> </ul> <p>The Intermediate model</p> <ul> <li>To what extent do firms exploit the relatedness?</li> <li>Holds risk reduction not predominantly for unrelated diversification?</li> </ul> Signup and view all the answers

Why would manufacturers expand their product portfolio with services? Or even offer their products as-a-service?

<ul> <li>With services you have the opportunity to build a relationship with customers</li> <li>For product innovation</li> <li>Services is a way to update your products (cross-selling)</li> </ul> Signup and view all the answers

Drivers of servitization

<p>Financial drivers</p> <ul> <li>Higher profit margin</li> <li>Less sensitive for price-based competition</li> <li>More resistant to economic cycles</li> </ul> <p>Strategic drivers</p> <ul> <li>Differentiate manufacturing offerings</li> <li>Sustainable competitive advantage</li> </ul> <p>Marketing drivers</p> <ul> <li>Total Cost of Ownership</li> <li>Service tend to induce repeat-sale</li> <li>Customer insights enable the development of tailored solutions</li> </ul> Signup and view all the answers

What are the key distinctive resources that contribute to industrial solution providers’ strategic capabilities?

<p>Answer: Installed base of products and service contracts, Physical and Technological assets, Human assets, Intellectual capital, Financial assets, and External assets.</p> Signup and view all the answers

... and ... result in ...

<p>distinctive resources and strategic processes result in industrial solutions providers' strategic capabilities</p> Signup and view all the answers

What is meant by 'Value Co-Creation' and with whom do industrial solution providers co-create this value?

<p>Value co-creation refers to jointly creating value through collaboration between providers and customers.</p> Signup and view all the answers

What benefits do high self-monitoring individuals experience in public versus private settings?

<p>In public settings, they prefer less employee intervention to avoid embarrassment, while in private settings, they favor more assistance.</p> Signup and view all the answers

List two main reasons firms pursue a diversification strategy.

<p>Firms diversify to spread risk and leverage excess resources.</p> Signup and view all the answers

What are the advantages of creating a business plan?

<p>Business plans are essential for securing funding, communicating the business's vision, and facilitating fast decision-making.</p> Signup and view all the answers

What is the role of the better-off test in business diversification?

<p>The better-off test assesses whether the new business enhances the company's overall profitability through synergies or shared capabilities.</p> Signup and view all the answers

Explain how cultural contexts can influence the effectiveness of business planning.

<p>In cultures with low uncertainty avoidance, business planning is less beneficial due to a preference for flexibility and adaptability.</p> Signup and view all the answers

How does the resource-based view (RBV) inform decision-making in related versus unrelated diversification?

<p>RBV suggests that firms will allocate resources to industries where they gain the most advantage, favoring related diversification for better capability transfer.</p> Signup and view all the answers

What does the principle of 'affordable loss' signify for entrepreneurs?

<p>'Affordable loss' allows entrepreneurs to focus on manageable risks rather than potential gains, enhancing their ability to pursue opportunities.</p> Signup and view all the answers

Explain the inverted U-shape model of diversification-performance linkage.

<p>The model suggests that diversification can enhance performance up to a point, beyond which it can strain management and create inefficiencies.</p> Signup and view all the answers

How does early internationalization potentially affect firm survival according to Sapienza et al. (2006)?

<p>Early internationalization can lead to both growth opportunities and increased risks, affecting a firm's survival based on its ability to manage these challenges.</p> Signup and view all the answers

What strategic advantage do solution providers gain from co-creating with customers?

<p>They tailor solutions to meet specific needs, leveraging capabilities in technology development and supplier network management.</p> Signup and view all the answers

What distinguishes the process theory of internationalization from the international new venture theory?

<p>The process theory of internationalization suggests a gradual approach, while the international new venture theory argues that some firms can internationalize early for competitive advantages.</p> Signup and view all the answers

Why might startups find rigid business plans to be less useful than established firms?

<p>Startups often operate in high uncertainty, where flexibility and adaptability are more beneficial than following a rigid business plan.</p> Signup and view all the answers

Why is separating a service organization from the core product organization beneficial for manufacturers?

<p>It allows for greater focus on customer engagement and value co-creation, boosting service performance.</p> Signup and view all the answers

Identify one financial driver behind the servitization of manufacturing firms.

<p>Higher profit margins are a key financial driver for servitization.</p> Signup and view all the answers

What is the core focus of causation in entrepreneurial decision-making?

<p>Causation focuses on defining specific goals and systematically working towards them through predetermined plans.</p> Signup and view all the answers

How do intangible assets influence the benefits of international diversification for firms?

<p>Intangible assets, such as brand reputation and intellectual property, can enhance a firm's competitive edge and shape its success during international expansion.</p> Signup and view all the answers

What are the potential risks of early internationalization for firms?

<p>Early internationalization can lead to high costs and risks associated with developing capabilities prematurely.</p> Signup and view all the answers

Can you explain resource fungibility and its importance in early internationalization?

<p>Resource fungibility is the ability to utilize resources across various activities, which is vital for adapting to new markets with limited resources.</p> Signup and view all the answers

How does managerial experience mitigate the lack of organizational experience in early-stage firms?

<p>Managers with international experience can apply their knowledge and routines, thus compensating for the absence of broader organizational experience.</p> Signup and view all the answers

What are the primary advantages of acquisition over greenfield investments?

<p>Acquisitions provide immediate access to resources and market share, but may incur higher costs and integration challenges.</p> Signup and view all the answers

What factors influence a firm's establishment mode choice between acquisitions and greenfields?

<p>Cultural distance and the types of resources affect whether firms prefer acquisitions in distant markets or greenfield investments in similar ones.</p> Signup and view all the answers

What are VRIN resources, and how do they affect entry strategy choices?

<p>VRIN resources are valuable, rare, inimitable, and non-substitutable; firms with these resources tend to prefer acquisitions to exploit their competitive advantages.</p> Signup and view all the answers

How does structural integration post-acquisition affect a firm's innovation capabilities?

<p>Structural integration can disrupt innovative capabilities by changing organizational routines, yet it's necessary for high interdependence situations.</p> Signup and view all the answers

What challenges do first mover firms encounter in valuing their innovations?

<p>First movers face high R&amp;D costs, the risk of creating uncertain markets, and competition from faster-following firms.</p> Signup and view all the answers

What does the PFI framework suggest regarding capturing value from innovation?

<p>The PFI framework emphasizes that firms require complementary assets to effectively profit from their innovations.</p> Signup and view all the answers

How do formal and informal IP protections differ in their impact on innovation value capture?

<p>Formal IP protections legally prevent copying, while informal protections complicate imitation through complexity and trade secrets.</p> Signup and view all the answers

What is the core difference between stakeholder and shareholder management?

<p>Stakeholder management focuses on creating value for all parties involved, whereas shareholder management prioritizes maximizing returns for shareholders.</p> Signup and view all the answers

What are the benefits of adopting a stakeholder-oriented governance approach according to Freeman?

<p>A stakeholder approach fosters sustainable profitability and long-term performance by considering the interests of various stakeholders.</p> Signup and view all the answers

Why are close relationship capabilities crucial but challenging to imitate in stakeholder management?

<p>Such capabilities are rare due to prevalent arm's-length relationships and difficult to replicate due to unique paths and social complexities.</p> Signup and view all the answers

How do technology-based self-service channels create a different customer experience compared to personal service channels?

<p>Technology-based self-services offer convenience and efficiency while personal services provide tailored interactions that are valuable in complex tasks.</p> Signup and view all the answers

What effect does self-monitoring behavior have on customer responses to self-service technology failures?

<p>Customers engage in self-monitoring which influences their preference for recovery strategies; they often prefer employee assistance in isolating situations.</p> Signup and view all the answers

Study Notes

Business Planning

  • Business plans are valuable for securing funding, communicating the business vision, and speeding up decision-making.
  • Counterarguments against business plans include limited resources and time pressure, and the uncertainty of the market, making experimentation potentially more effective than planning.
  • A meta-analysis by Brinckmann, Grichnik, and Kapsa (2010) confirms that business planning has a generally positive effect on firm performance but depends on factors such as firm development stage and cultural context.
  • Business planning is less beneficial in cultures with low uncertainty avoidance.
  • Planning is more effective for established firms as startups often face high uncertainty which limits the utility of rigid plans.

Effectuation

  • Causation focuses on setting goals and working towards them with a predefined plan.
  • Effectuation begins with the means at hand (who you are, what you know, who you know) and allows goals to emerge over time through interactions and adaptability.
  • Affordable loss allows entrepreneurs to focus on what they are willing to lose rather than what they expect to gain.
  • Affordable loss helps manage risks in uncertain environments, enabling them to pursue opportunities with limited downside risk.

Internationalization

  • The process theory of internationalization (PTI) suggests that internationalization is a gradual, incremental process.
  • International new venture theory (INV) posits that some ventures internationalize early, deriving competitive advantages from being global right from their inception.
  • Early internationalization can hinder firm survival due to the high costs and risks of developing capabilities early on.
  • While early internationalization accelerates growth as firms develop adaptability and acquire new capabilities.
  • Resource fungibility refers to the ability to use resources across various activities.
  • Resource fungibility is crucial in early internationalization because it allows firms to deploy their limited resources flexibly to adapt to new markets
  • Managers with international experience can leverage their personal knowledge and routines, reducing the need for organizational experience.

Entry Modes

  • Acquisitions provide immediate access to resources, market share, and local knowledge but can be costly and risk integration issues.
  • Greenfield investments offer full control and customization but are slower and require higher initial investment.
  • Firms with international experience or knowledge-based resources may prefer acquisitions in culturally distant markets where acquiring local expertise is critical.
  • Greenfield investments are more feasible in culturally similar markets.
  • Firms with strong VRIN resources (valuable, rare, inimitable, non-substitutable) are more likely to exploit these resources through acquisitions or greenfield investments, using them to gain competitive advantages in new markets

Capturing Value from Innovation

  • First movers face high R&D costs, the risk of creating a market that doesn’t yet exist, and competition from fast followers who can learn from the first mover’s mistakes.
  • The PFI framework (Profiting from Innovation) suggests that firms need complementary assets, such as distribution networks or marketing capabilities, to fully capture the value from their innovations.
  • Formal IP protection legally prevents competitors from copying innovations, while informal protection creates barriers to imitation through operational complexity or first-mover advantages.
  • Merck’s collaboration to place human gene sequence data into the public domain was a strategic move to prevent competitors from claiming exclusive rights over key genetic information, ensuring Merck could continue its research.

Stakeholder vs. Shareholder-Oriented Growth

  • Stakeholder management focuses on creating value for all stakeholders (employees, customers, communities), while shareholder-focused management prioritizes maximizing returns for shareholders.
  • A stakeholder approach leads to sustainable profitability and survival by addressing the interests of a broad group of stakeholders, thus enhancing long-term performance.
  • Firms building relationships based on fairness, trust, and respect can improve financial performance by fostering reciprocal, long-term stakeholder relationships.
  • Close relationship capabilities are rare because firms typically default to arm’s-length relationships, and they are difficult to imitate due to path dependency, causal ambiguity, and social complexity.

Self-Service Growth

  • Technology-based self-services provide convenience and efficiency but lack personalization.
  • Personal service channels offer tailored, relational benefits that are valuable when tasks are complex or require human interaction.
  • Customers prefer employees to take over in isolated settings after SST failures but prefer to finish transactions themselves when others are present.
  • The servicescape can induce self-monitoring behaviors that affect recovery preferences.
  • High self-monitoring individuals adjust their behavior based on social cues.
  • In public settings, they may prefer less employee intervention to avoid embarrassment, while in private settings, they prefer more assistance.
  • Firms diversify to spread risk, leverage excess resources, and capture synergies.
  • Related diversification involves entering industries with similar technologies or markets while unrelated diversification targets completely different industries.
  • The better-off test evaluates whether the new business will benefit the company overall through synergies or shared capabilities, ensuring the diversification enhances profitability.
  • RBV suggests firms will deploy resources to industries where they can gain the most advantage, with related diversification offering a stronger fit due to the transfer of existing capabilities.
  • Diversification improves performance up to a point (inverted U-shape), but beyond a certain level, it strains management, reduces strategic coherence, and leads to inefficiencies.

Growing with Products or Services

  • Financial drivers include higher profit margins and resilience to economic cycles.
  • Strategic drivers involve differentiating offerings and creating a sustainable competitive advantage, while marketing drivers focus on repeat sales and customer insights.
  • Solution providers co-create value by partnering with customers to tailor solutions, leveraging their capabilities in technology development, project management, and supplier networks to meet customer-specific needs.
  • Separating the service business allows for more focus on customer engagement and value co-creation, improving service performance by fostering closer partnerships and enabling direct interaction with customer processes.

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This quiz explores the importance of business plans and their role in the success of a company. Discover the various components that make a business plan effective and why it is essential for securing funding and guiding strategy. Test your knowledge on the reasons businesses create these foundational documents.

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