Corporate Strategy Lecture Notes
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What is one of the main reasons companies pursue vertical integration?

  • To enhance employee satisfaction
  • To lower transaction costs (correct)
  • To increase market share
  • To diversify their product offerings

    • Kodak's diversification strategy primarily aimed to achieve what outcome?

  • To increase profitability in unrelated industries (correct)
  • To improve technology in imaging software
  • To enter the film production market
  • To reduce production costs

    • What is the nature of Kodak's acquisition strategy in relation to the pharmaceutical industry?

  • Kodak is focusing solely on its existing photographic technology.
  • Kodak is planning to divest from the pharmaceutical sector.
  • Kodak is merging with pharmaceutical companies to enhance its photo business.
  • Kodak aims to leverage its expertise in analytical chemistry for production of APIs. (correct)

    • How did Kodak's failure to transition to digital technology impact its business model?

    <p>It weakened its market power significantly.</p> Signup and view all the answers

    What lesson can be learned from Kodak's downfall regarding corporate strategy?

    <p>Technology changes require timely adaptation.</p> Signup and view all the answers

    What can be inferred about Kodak's transition to digital photography based on its past strategies?

    <p>Kodak failed to adapt quickly enough to the digital landscape.</p> Signup and view all the answers

    How has technology impacted Kodak's business model in recent years?

    <p>It resulted in a loss of relevance in the photographic market.</p> Signup and view all the answers

    Which aspect of corporate strategy pertains to 'make, buy or ally' decisions?

    <p>Vertical scope</p> Signup and view all the answers

    Which is a key motivation for firms to diversify their products?

    <p>To mitigate corporate risk</p> Signup and view all the answers

    What lesson can be learned from Kodak's downfall in relation to corporate strategy?

    <p>Diversification without core competence can lead to failure.</p> Signup and view all the answers

    In the case studies of corporate strategy, which approach is highlighted in Kodak's strategy to enter new markets?

    <p>Utilizing related diversification by applying its chemical expertise.</p> Signup and view all the answers

    In the context of corporate strategy, what does the 'invisible hand' refer to?

    <p>Market-driven production organization</p> Signup and view all the answers

    What was one of the core questions of transaction cost economics?

    <p>Why choose firms over markets for transactions?</p> Signup and view all the answers

    What is a merger?

    <p>Joining two independent firms to create a combined entity.</p> Signup and view all the answers

    Which factor is a main driver of underperformance in mergers and acquisitions?

    <p>Overconfidence of CEOs</p> Signup and view all the answers

    Which type of acquisition has been shown to outperform others?

    <p>Related acquisitions</p> Signup and view all the answers

    What is one key benefit of divestiture for a company?

    <p>Refocusing strategic resources into core businesses</p> Signup and view all the answers

    How can divesting certain assets affect a corporation?

    <p>It can diminish chances for long-term growth.</p> Signup and view all the answers

    What is one goal of corporate divestiture?

    <p>To improve operating performance.</p> Signup and view all the answers

    What occurs when a firm increases its acquisitiveness?

    <p>Performance tends to decline deal by deal.</p> Signup and view all the answers

    What can effective divestiture help a company achieve?

    <p>Focus on its core business activities.</p> Signup and view all the answers

    What is the impact of acquisitions that are unrelated or diversifying?

    <p>They are often less successful than related acquisitions.</p> Signup and view all the answers

    What does the BCG Matrix help manage in corporate portfolios?

    <p>Resource allocation among business units.</p> Signup and view all the answers

    What is a primary goal of the shared-service organizations supporting both Disney Entertainment and ESPN?

    <p>To create a more cost-effective and streamlined operation</p> Signup and view all the answers

    Which test evaluates if diversification must be directed towards attractive industries?

    <p>Attractiveness Test</p> Signup and view all the answers

    What does the cost of entry test evaluate in the context of diversification?

    <p>If the cost of entry capitalizes on all future profits</p> Signup and view all the answers

    Which matrix is primarily used as a strategy tool for portfolio planning in multi-business firms?

    <p>GE-McKinsey Matrix</p> Signup and view all the answers

    How is industry attractiveness evaluated in the context of portfolio management?

    <p>By examining market size and growth rate</p> Signup and view all the answers

    In the context of unrelated diversification, which of the following is considered a type of financial economy?

    <p>Restructuring of assets</p> Signup and view all the answers

    What does the better-off test assess in corporate diversification?

    <p>If the new unit gains a competitive advantage from its association</p> Signup and view all the answers

    What could be a reason why a company might face challenges in diversifying its portfolio?

    <p>Inability to assess market trends accurately</p> Signup and view all the answers

    Which of the following is NOT a component of evaluating industry attractiveness?

    <p>Employee engagement levels</p> Signup and view all the answers

    Which of the following is NOT a benefit of shared service organizations in the context of a corporate restructuring?

    <p>Increasing competition among internal teams</p> Signup and view all the answers

    What was Kodak's primary concern regarding their investment in digital technology?

    <p>Fear of cannibalizing core business</p> Signup and view all the answers

    In which year did Kodak's CEO invest aggressively in digital imaging R&D?

    <p>1996</p> Signup and view all the answers

    What significant investment strategy did Kodak undertake regarding its digital imaging?

    <p>Establishing digital kiosks in partner stores</p> Signup and view all the answers

    What was a key factor contributing to Kodak's failure in the digital transition?

    <p>Overvaluing their traditional products</p> Signup and view all the answers

    What does the term 'innovator’s dilemma' refer to in the context of Kodak?

    <p>The struggle to continue investing in new technology while profitable products dominate</p> Signup and view all the answers

    How much did Kodak invest in research and development for digital imaging?

    <p>$2 billion</p> Signup and view all the answers

    What challenges did Kodak face due to their commitment to specific product specifications for digital imaging?

    <p>Challenges in changing business models</p> Signup and view all the answers

    What lesson can be learned from Kodak's downfall in the context of corporate strategy?

    <p>Understanding market trends is crucial for success</p> Signup and view all the answers

    What type of business model did Kodak struggle to adjust while transitioning to digital imaging?

    <p>Traditional film sales model</p> Signup and view all the answers

    Which of the following describes Kodak's strategy towards their digital investment?

    <p>Rushed investments without solid market analysis</p> Signup and view all the answers

    Study Notes

    Corporate Strategy Lecture Notes

    • Corporate strategy defines where a firm competes

    • Business strategy defines how a firm competes within a particular area of business

    • Corporate strategy decisions define the scope of the firm

      • Vertical scope → make, buy, or ally
      • Product scope → diversification
      • Geographic scope → internationalization

    • Corporate strategy has three dimensions: vertical, product, and geographic scope

    • Reasons for vertical integration include: increasing profitability, lower costs, increasing market power, and motivating employees and reducing risk

    • Transaction cost economics (TCE) helps explain when firms vertically integrate (when transaction costs are high)

      • Core questions:
        • Why organize transactions in firms when markets are efficient?
        • What is the comparative efficiency of markets versus firms?
      • Answer: Firms choose governance structures (market or firm) that minimize transaction costs
      • Types of transaction costs:
        • Mundane: describing, communicating, negotiating, transferring goods, verifying quality, valuing and paying for goods
        • Lawful: breaking informal or relational contracts
        • Blatant: violating formal contracts or breaking the law

    • Vertical integration is a firm's ownership and control of multiple vertical stages in the supply chain of a product.

    • Reasons for vertical integration: high asset-specific investments; hold-up behavior (opportunism)

    • Types of asset-specificity: physical, human, and location

    • Benefits and risks of vertical integration:

      • Benefits: protection against opportunistic behavior, better scheduling, securing critical supplies and distribution channels
      • Risks: reduced flexibility, legal repercussions

    • Taper integration: a firm is backwardly integrated but also relies on outside-market firms for some of its supplies; and/or a firm is forwardly integrated but also relies on outside-market firms for some of its distribution

    • Dual or concurrent sourcing: solve cost-quality tensions, best of both worlds; absorptive capacity

    • Product scope → diversification

      • Questions on diversification:
        • Is specialization or diversification better?
        • Is there an optimal degree of diversification?
        • When does diversification create rather than destroy value?
        • When will diversification lead to competitive advantage?

    • Types of diversification:

      • Single business → greater than 95% of revenue from one business
      • Dominant business → between 70% and 95% of revenue from one business
      • Related diversification → less than 70% of revenue from the dominant business, but links between businesses exist.
      • Unrelated diversification → less than 70% of revenue from the dominant business, no common link between businesses

    • Motives for diversification:

      • Growth: escaping stagnant or declining industries
      • Risk spreading: more stable cash flow for managers; shareholders can hold a diverse portfolio at a lower cost
      • Value creation: diversification to attractive industries; synergies: sharing resources and capabilities to gain efficiencies

    • Economies of Scope: Using a resource across multiple activities

    • Types of relatedness in diversification:

      • Operational Relatedness – sharing activities between businesses
      • Corporate Relatedness – transferring competencies across businesses

    • Three tests of diversification:

      • Attractiveness: directed towards attractive industries
      • Cost of entry: not capitalizing all future profits
      • Better-off: new unit gains competitive advantage from its link with the company; or vice-versa (i.e. synergies)

    • Portfolio planning matrices:

      • GE-McKinsey Matrix: industry attractiveness x business unit strength
      • BCG Growth-Share Matrix: market growth x relative market share

    • Sources of value creation and costs:

      • Value: reduction in competitive intensity, lower costs, increased differentiation
      • Costs: integration failure, reduced flexibility, potential for legal repercussions

    • Mergers & Acquisitions (M&A): (merger → joining of two firms into one; acquisition → one firm buys another)

      • Extended review suggests:
        • Related acquisitions outperform unrelated ones
        • Performance declines as acquisitiveness increases
        • CEO overconfidence drives underperformance

    • Kodak Case Study:

      • Early success with film cameras; 90%+ market share in the 1970s.

      • Failed transition to digital imaging due to management's inability to see digital photography as a disruptive technology; unwillingness to see digital photography as a disruptive technology

      • Kodak focused on printing and developing digital images, which didn't match customer needs.

      • Kodak developed pharmaceuticals – knowledge of chemicals used in film

      • Kodak acquired Ofoto – photo sharing platform - did not capitalize on opportunities

      • Kodak employed a "razor and blade" business model, capturing high profits from consumable supplies compared to cameras

      • Kodak had issues transitioning to digital, missed out on opportunities

      • Diversification of Kodak into APIs, chemical, and healthcare avenues.

    • What is next?

      • Analyzing the Amazon case
      • Utilizing online tutorials and materials provided
      • Completing assignments on K2

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    Corporate Strategy Lecture 7 PDF

    Description

    This quiz covers key concepts in corporate strategy, focusing on how firms define their competitive scope through vertical, product, and geographic dimensions. Explore the reasons for vertical integration and the role of transaction cost economics in strategic decision-making. Test your understanding of these fundamental ideas in the context of business strategy.

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