Finals Study Guide PDF

1. Innovation (focus only on incremental innovation): Why do firms gradually innovate their technology and products? Incremental innovation is an innovation that squarely builds on the firms established knowledge base, steadily improves the product or service it offers, and targets exis...

1. Innovation (focus only on incremental innovation): Why do firms gradually innovate their technology and products? Incremental innovation is an innovation that squarely builds on the firms established knowledge base, steadily improves the product or service it offers, and targets existing markets by using existing technology. There are strategic, organizational, and economic reasons for incremental innovation. Strategic: Incumbent firms tend to be a source of incremental innovation rather than radical innovation because they become embedded in a network of suppliers, buyers and complementors. They don’t make independent decisions anymore and must now consider the ramifications of their decisions. Choosing a radical innovation approach would make the existing value network obsolete while choosing incremental innovation embeds them in the network further. Newcomer firms don’t need to worry about pre-existing value networks and are free to radically innovate.Economic: Once an innovator has become an established player in an industry, they have strong incentives to protect their position. The use of incremental innovation strengthens the incumbent firms position and maintains high entry barriers. As a result this allows the incumbent to use the time allotted from incrementally innovating to extract as much profits as possible from the industry life cycle. Any radical innovation threatens the incumbent firms dominant position. On the flip side, successfully commercializing a radical innovation allows a new company to hop past those high entry barriers. Amgen used new drugs based on genetic engineering to overcome high entry barriers in the pharma industry. Because of differing economic incentives,Pharma incumbents pushed for incremental innovation while Pharma new entrants pushed for radical innovation. Organizational Reasons:As new entrants become more established and grow, they rely on established structures and business processes.Therefore, incumbent firms tend to favor incremental innovation because it reinforces the standard organizational structure of the business. On the flipside, radical organization could upset the organization structure (make r&D bigger than other departments, for example).New firms don’t have these structures giving them more room to innovate. 2. CSR vs. CSV: In that lecture, we discussed why CSV is better than CSR (especially philanthropic CSR, such as donating something to society). What are the drawbacks of this type of philanthropic CSR? Philanthropic CSR (like donating to a charity) would be a short term solution but fails to create long term value for the business or society. Philanthropic CSR isn’t allied with the company's long term objectives and activities. Therefore it doesn’t  leverage the company's strength to create real change. CSV, on the other hand, focuses on addressing issues that correlate with the company's business model. For example when starbucks trained their farmers on growing high quality coffee beans, it enhanced both community welfare and the companies supply chain and profitability. Explain starbucks case in detail 3. Four IB strategies and organization structures: You should know the example companies implementing each type of IB strategy. What organization structure do they adopt to implement their IB strategy? Four Strategies graphic: International Strategy:An international strategy is a strategy for competing in two or more countries simultaneously. The International Strategy in international business is characterized by centralized control at headquarters, with a focus on transferring core competencies to foreign markets without significant local adaptation. Companies using this strategy prioritize leveraging their existing knowledge, capabilities, and innovations globally, rather than tailoring products or services to local preferences. This strategy is most effective when there is minimal pressure for local responsiveness and low pressure for cost reduction. However, its limitation lies in reduced effectiveness in markets with significant cultural or consumer differences.A well-known example of a business using the International Strategy is McKinsey & Company. The firm operates with centralized control from its New York headquarters, providing standardized consulting frameworks and methodologies across its global offices. McKinsey focuses on transferring its core competencies—global best practices and thought leadership—without significant adaptation to local markets. This approach suits its knowledge-intensive industry, where clients value consistent, high-level strategic consulting over localized solutions.The International Strategy is associated with centralized control, aligning with a Functional Structure to facilitate the global transfer of core competencies Transnational strategy: transnational strategy is a think-global, act-local approach that incorporates elements of both multidomestic and global strategies. Example: McDonald’s, KFC, and Starbucks have discovered ways to customize their menu offerings in various countries without compromising costs, product quality, and operating effectiveness.The Transnational Strategy relies on a Matrix Structure to integrate local responsiveness with global coordination. Multinational strategy aka Localization strategy(think local act local): A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level.BP utilizes localized strategies in its gasoline and service station business segment because of these cross-country formulation differences and because of customer familiarity with local brand names. For example, the company markets gasoline in the United States under its BP and Arco brands, but markets gasoline in Germany, Belgium, Poland, Hungary, and the Czech Republic under the Aral brand. Companies in the food products industry often vary the ingredients in their products and sell the localized versions under local brand names to cater to country-specific tastes and eating preferences.The Localization Strategy emphasizes decentralization, supported by a Divisional Structure with regionally focused units. Global Strategy(think global act global):A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach. Example : As a rule, most companies that operate internationally endeavor to employ as global a strategy as customer needs and market conditions permit. Consumer electronics companies such as Apple, Nokia, and Motorola Mobility tend to employ global strategies. The development of universal standards in technology is one factor supporting the use of global strategies. So is the rise of global accounting and financial reporting standards. The Global Strategy requires a centralized approach for efficiency, aligning with structures like the Product-Team Structure to streamline global operations. What is an organizational structure? Assigns employees to specific value creation tasks and roles and specifies how these tasks and roles are to work together specifies how these tasks and roles are Three organizational structures: Product-Team Structure Matrix Structure  Functional Structure 4. Particularly, you should know the difference between product-team and matrix structure: When do firms adopt the product-team structure? And when do firms adopt the matrix structure? A Product-Team Structure centralizes decision-making around product lines rather than geographic markets. Teams focus on global product development, manufacturing, and marketing for consistency and efficiency. When to Use:  The company is focused on specific global products or product lines that need consistent quality and innovation. There is a high priority on speed, innovation, and flexibility within product development. Operations are less complex, with minimal conflicting demands between global standardization and local responsiveness. The company is pursuing a Global Standardization Strategy, where efficiency, cost control, and product uniformity are key. The Matrix Structure overlays functional or product structures with geographic divisions. This hybrid model facilitates both centralized control (for global efficiency) and decentralized autonomy (for local responsiveness). When to Use: The company operates in a complex global environment requiring both global coordination and local responsiveness. It needs to manage multiple, often conflicting demands (e.g., product specialization vs. regional customization). The company is pursuing a Transnational Strategy, where the integration of global operations and local responsiveness is critical. Cross-functional and cross-regional resource sharing is essential to achieve competitive advantages.