BSAD 490
STUDY GUIDE, TEST #2 (Ch 7, 9, 10, 13)
(If you have concerns about the accuracy of your answers, you can bring them to me
for review anytime b/f the test)
1. List & briefly discuss 4 reasons for acquiring another firm.
Increased market power
Market power exists when a firm is able to sell its goods or services above
competitive levels or when the costs of its primary or support activities are below
those of its competitors
Overcoming entry barriers
Barriers to entry are factors associated with the market or with the firms currently
operating in it that increase the expense and difficulty faced by new ventures trying to
enter that particular market
Cost of New-Product Development and Increased Speed to Market
A firm can gain access to new products and to current products that are new to the
firm
Extensive throughout the pharmaceutical industry, where firms frequently use
acquisitions to enter markets quickly, to overcome the high costs of developing
products internally, and to increase the predictability of returns on their investments
Lower risk compared to developing new products
An acquisition’s outcomes can be estimated more easily and accurately compared to
the outcomes of an internal product development process
Increased diversification
Based on experience and the insights resulting form it, firms typically find it easier to
develop and introduce new products in markets currently served by the firm
Reshaping the firm’s competitive scope
To reduce the negative effect of an intense rivalry on their financial performance,
firms may use acquisitions to reduce their dependence on one or more products or
markets. Reducing a company’s dependence on specific markets alters the firm’s
competitive scope
Learning and developing new capabilities
Some acquisitions are made to gain capabilities that the firm does not possess
2. List & briefly discuss 4 problems in achieving acquisition success.
Integration difficulties
Attempting merger of different cultures and operating styles often results in clashes,
which imply these cause inefficient and ineffective operations
Inadequate evaluation of target
Lack of knowledge causes inability to value firm, which imply inflated costs. Also,
premiums must be paid to entice some owners to sell
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Large or extraordinary debt
Too much debt causes inflexibility (inability to pursue other opportunities or maintain
current operations at previous levels)
Inability to achieve synergy
Also indirect costs (identification and selection of targets, negotiations, consultants,
loss of key personnel) are often underestimated
Too much diversification
Complexity may causes declining flexibility
Managers overly focused on acquisitions
Diverts attention away from what may be more important issues (i.e. Long-term
goals, strategy, core business, and employee relations)
Too large
After some point the benefits derived from increased size can begin to diminish
3. List & define the 3 methods of restructuring.
Downsizing
Downsizing is a reduction in the number of a firm’s employees and, sometimes, in the
number of its operating units, but it may or may not change the composition of
business in the company’s portfolio
Down scoping
Down scoping refers to divestiture, spin-off, or some other means of eliminating
businesses that are unrelated to a firm’s core businesses
Leveraged buyouts
LBO is a restructuring strategy whereby a party buys all of a firm’s assets in order to
take the firm private
Restructuring outcomes
4. List & briefly discuss 3 types of strategic alliances.
Joint venture
A strategic alliance is a cooperative strategy in which firms combine some of their
resources and capabilities to create a competitive advantage
Equity strategic alliance
An equity strategic alliance is an alliance in which 2 or more firms own different
%age of the company they have formed by combining some of their resources and
capabilities to develop a competitive advantage
Non-equity strategic alliance
A non-equity strategic alliance is an alliance in which 2 or more firms develop a
contractual relationship to share some of their unique resources and capabilities to
create a competitive advantage
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5. Define tacit collusion and explain the difference b/w, & implication of, explicit
collusion?
Tacit collusion
Tacit collusion exists when several firms in an industry indirectly coordinate their
production and pricing decisions by observing each other’s competitive actions and
responses
Explicit collusion strategies
Explicit collusion strategies exists when firms directly negotiate production output
and pricing agreements in order to reduce competition
It’s illegal in US unless regulated by GVMT
6. List & briefly discuss 2 business-level cooperative strategies.
Complementary strategic alliances
Complementary strategic alliances are business-level-alliances in which firms share
some of their resources and capabilities in complementary ways to develop
competitive advantages
Competition response strategy
Competitors initiate competitive actions to attack rivals and launch competitive
responses to their competitors’ actions
Uncertainty reducing strategy
Competition reducing strategy
Collusive strategies are an often-illegal type of cooperative strategy, separate from
strategic alliances, which are used to reduce competition. There are 2 types of
collusive strategies—explicit collusion and tacit collusion
7. List 3 advantages & 3 disadvantages of franchising.
Advantages:
Reduce financial risk
Motivate franchisors to perform well
Provides growth at less risk than diversification
Disadvantages:
Firm losses some control
Sharing profit
Complex of cost control system (i.e. ACCT, FINC)
8. Briefly discuss the importance of synergies in forming strategic alliances.
Synergistic strategic alliance
Synergistic strategic alliance is a corporate-level cooperative strategy in which firms
share some of their resources and capabilities to create economies of scope
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9. List the 5 motives for cooperative strategies.
Developing new products
Improving supply chain efficiencies
Economies of scale & scope
Fill gaps in expertise (e.g. technical, manufacturing)
Gain market access
Decrease risks
Increase organizational size cause increase salaries
Synergies
Decrease uncertainty
Increase market power
Share costs
Erect barriers to entry
10. List & briefly discuss 3 risks of cooperative strategies.
Diversifying strategic alliance
A diversifying strategic alliance is a corporate-level cooperative strategy in which
firms share some of their resources and capabilities to diversify into new product or
market areas
Synergistic strategic alliance
Synergistic strategic alliance is a corporate-level cooperative strategy in which firms
share some of their resources and capabilities to create economies of scope
Franchising
Franchising is a corporate-level cooperative strategy in which a firm (the franchisor)
uses a franchise as a contractual relationship to describe and control the sharing of its
resources and capabilities with partners (the franchises)
11. List the 4 corporate governance mechanisms discussed in Ch 10.
Ownership concentration
Board of directors
Executive compensation
Market for corporate control
12. List the 4 characteristics of “effective “ innovation (i.e., that which is capable of
leading to sustainable competitive advantage)
Valuable
Rare
Difficult to imitate
Non-substitutable
13. Define corporate entrepreneurship & list the 5 characteristics of entrepreneurial
oriented firms.
Corporate Entrepreneurship
Corporate Entrepreneurship is a process whereby an individual or group in an existing
organization creates a new venture or develops in an innovation
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Risk-taking
Autonomy
Proactive
Competitive aggressiveness
Innovation
14. List & define the 2 processes of ICV’ing.
Internal Corporate Venturing
Internal Corporate Venturing is the set of activities used to create inventions and
innovations through internal means
Incremental—adjustment
Radical innovations—revolutionize
15. List & briefly discuss the 2 barriers to integration.
Functional specialization
To some degree is necessary to maintain task specialization & efficiency, but the
effects of this structural design can result in different emphases, poor communication
between departments, etc that may hinder integration, and though Internal Corporate
Venturing
Organizational politics
The competition for resources among departments can result in dysfunctional conflict
that can hinder integration
16. List & briefly discuss 4 methods firms for facilitating cross functional integration.
Shared values
Linking strategic mission & internal innovation
Leadership
Focus on importance of innovation
Goals & budgets
Specifically for new product development & commercialization
Effective communication systems
System & culture that facilitates & emphasizes communication
17. What is meant by the term 1st mover advantages & what type of advantages might
be achieved?
Much less a competitive advantage in many global markets
Achieve the highest returns
18. List 4 methods for acquiring (enhancing) innovation (internal, str’c alliances,
etc)
Internal corporate venturing
Cooperative strategy
Innovation through acquisition
Innovation through venture capital
DON’T FORGET TO BE AWARE OF THE REST OF THE NOTES (& BOOK)
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