CaseScenario3:Zachary,Wesley&Partners.
Zachary, Wesley & Partners (ZW&P) is a leveraged buyout (LBO) firm that specializes
in friendly buyouts of mid- sized U.S. retailing and manufacturing firms. ZW&P shuns
turnarounds and hostile takeovers; its typical deals retain the existing management team
and provide extensive funding for what is perceived to be an already sound strategy. It
focuses on this type of firm because the partners have good contacts in retailing and
manufacturing and they are typically able to avoid bidding wars when the LBO is
negotiated. The firm has been immensely profitable over the years, in part due to the
very extensive and selective due diligence process used to winnow down the list of
prospective targets. Fewer than one out of one hundred candidates are even approached,
and only a fraction of these passes further screens in the LBO negotiations. The
resulting profitability has, in turn, given ZW&P a strong reputation in the financial
community for successful deals, and among managers for being able to put together
needed financing with good business plans.ZW&P’s core resources are its financial and
technological resources.
CaseScenario3:Zachary,Wesley&Partners.
Zachary, Wesley & Partners (ZW&P) is a leveraged buyout (LBO) firm that specializes
in friendly buyouts of mid- sized U.S. retailing and manufacturing firms. ZW&P shuns
turnarounds and hostile takeovers; its typical deals retain the existing management team
and provide extensive funding for what is perceived to be an already sound strategy. It
focuses on this type of firm because the partners have good contacts in retailing and
manufacturing and they are typically able to avoid bidding wars when the LBO is
negotiated. The firm has been immensely profitable over the years, in part due to the
very extensive and selective due diligence process used to winnow down the list of
prospective targets. Fewer than one out of one hundred candidates are even approached,
and only a fraction of these passes further screens in the LBO negotiations. The
resulting profitability has, in turn, given ZW&P a strong reputation in the financial
community for successful deals, and among managers for being able to put together
needed financing with good business plans.Effectively managing ZW&P’s portfolio of
resources (in particular its human and social capital resources) may be its most
important strategic leadership task.
CaseScenario1:NorningInternational
Norning International (NI) states that both its past successes and future growth
strategies are based on an evolving network of wholly owned businesses and joint
ventures around its core competency in glass making. Through their alliances and
owned divisions they compete in four global business sectors: Specialty Glass and
Materials (including materials for HDTV and LCD displays), Consumer Housewares
(including microwavable dishware), Laboratory Sciences Products and Services (test
tubes, testing equipment, and drug trials testing), and Communications (fiber optics and
related technologies). Per the company’s annual report, “binding all four sectors
together is the glue of a commitment to leading edge glass making technologies, shared
resources, and dedication to total quality.” Each sector is composed of divisions,
subsidiaries, and alliances. However, the central role played by alliances is
demonstrated by the fact that the combined revenue of its 30-some alliances is more
than double that of NI on its own. Most of the alliances provide NI with access to
particular geographic markets, industries, or channels, although an increasing number
of alliances involve both market access and technological development.
Norning International (NI) is following a network cooperative strategy.This strategy
should work best in linking together geographically disperse markets where no one
form serves as the leader of the network.
CaseScenario2:ERPInc
ERP, Inc., (ERPI) is a leading provider of enterprise integration software (EIS). EIS
essentially allows a firm to connect and integrate processes across all aspects of its
business. To fuel its dramatic growth, ERPI has focused its organization entirely on
product development (software programming for a suite of EIS products) and selling
(making the sale and then moving onto a new target) while outsourcing the installation
and consulting aspects to the world’s largest accounting firms. This also makes ERPI
basically a “product company,” whereas most competitors like Oracle and PeopleSoft in
its market space operate as ‘solutions companies.” One benefit of this focused strategy
is that ERPI’s product is generally recognized as being 200 percent to 300 percent better
than competitors’ software, and thus adopters are thus likely to have a 1- to 2-year
advantage. In further contrast to the competition, ERPI has used its partnerships with
the accounting firms to deliver a turn-key solution, and has focused this solution on a
market comprised of the world’s largest, global manufacturers and consumer product
companies. The accounting firms, in turn, coordinate a comprehensive collection of
hardware, operating systems, and complementary software firms. Installation and
related consulting for EIS typically cost between $100 and $200 million, with the ERPI
software component accounting for only about 20 percent of the installed cost (the
remaining 80 percent is spent on the actual installation, not counting the value of the
customer’s time). To incentivize the accounting firms to help sell its product (since, at
least initially, the accounting firms had better reputations and controlled access to the
target customers), ERPI told its partners that it will never enter the installations and
consulting side of the business (aside from installation and consulting that ERPI does as
part of its software support). Dangling such a large carrot in front of the accounting
firms provided the continuing benefit of encouraging their continued support of ERPI
with their customers.
The approach used to manage the ERPI network of alliances is closest to an
opportunity-maximization approach, which makes it possible which for the partners to
explore how their resources and capabilities can be shared in multiple value-creating
ways.
Knowledge must be transferred to others in the firm to enhance the entrepreneurial
competence of the firm. This requires that
a. the receiving party have adequate absorptive capacity to learn.
b. the communication process be highly intensive.
c. the knowledge be broken into the smallest comprehensible units.
d. training consultants be involved in every step of transference.
In China, Starbucks is standardizing its operations while simultaneously decentralizing
some decision-making responsibility to local levels to meet customers tastes. Starbucks
is following the _______ international corporate-level strategy.a. transnational
b. global
c. differentiation
d. multidomestic
A major department store chain has a strict policy of banning photographs or videos of
its sales floor or back-room operations. It also does not allow academics to conduct
studies of it for publication in research journals. In fact, some of its own top managers
refer to the management’s policies on secrecy as “verging on paranoid.” These policies
indicate that the top management of the firm believes the organization’s core
competencies are
a. causally ambiguous.
b. unobservable.
c. imitable.
d. common.
United Technologies, Textron, Samsung, and Hutchison Whampoa Limited are
examples of diversified firms that have no relationships between their businesses. These
firms all use the strategy of unrelated diversification.
a. True
b. False
Financial economies are cost savings realized through improved allocations of financial
resources based on investments inside or outside the firm.
a. True
b. False
The typical risks of a cost leadership strategy include
a. the inability to balance high differentiation and low price.
b. production and distribution processes becoming obsolete.
c. excessive differentiation to the point where the customer base is too small.
d. loss of customer loyalty.
A strategic alliance in which the partners own different percentages of the new
company they have formed is called a(n)
a. equity strategic alliance.
b. joint venture.
c. nonequity strategic alliance.
d. cooperative arrangement.
A global strategy
a. is easy to manage because of common operating decisions across borders.
b. achieves efficient operations without sharing resources across country boundaries.
c. increases risk because decision making is centralized at the home office.
d. lacks responsiveness to local markets.
Scanning involves detecting meaning through early signals of environmental trends.
a. True
b. False
The rate of technology diffusion has been steadily increasing over the last two decades.
a. True
b. False
Sales of watches among teenagers and twenty-somethings are declining rapidly as this
age group uses cellphones, iPods, and other devices to tell time. A company that
specializes in selling inexpensive watches to this age group may wish to consider in
order to develop new products other than watches.
a. unrelated diversification
b. backward integration
c. forward integration
d. horizontal acquisitions
Research suggests (Chapter 7 Strategic Focus) that government ownership of emerging
economy firms leads to overpayment in cross-border acquisitions and that overpayment
reduces value for minority shareholders (nongovernment shareholders).
a. True
b. False
are unsecured obligations that are not tied to specific assets for collateral.
a. Bearer bonds
b. No-load stocks
c. Penny stocks
d. Junk bonds
Hutchison Whampoa Limited (HWL) has businesses in ports and related services,
telecommunications, property and hotels, retail and manufacturing, and energy and
infrastructure. HWL makes no efforts to share activities or transfer core competencies
among the businesses. HWL is following a strategy of diversification.
a. dominant business
b. related constrained
c. related linked
d. unrelated
Capabilities that other firms cannot develop easily are classified as
a. costly to imitate.
b. rare.
c. valuable.
d. nonsubstitutable.
Define globalization and describe some of its consequences.
Identify and describe the modes of entering international markets. What are their
advantages and disadvantages?
CaseScenario2:WaltDisneyCompany.
Walt Disney Company is famed for its creativity, strong global brand, and uncanny
ability to take service and experience businesses to higher levels. In the early 1990s,
then-CEO Michael Eisner looked to the fast-food industry as a way to draw additional
attention to the Disney presence outside of its theme parks-its retail chain was highly
successful and growing rapidly. A fast-food restaurant made sense from Eisner’s
perspective since Disney’s theme parks had already mastered rapid, high-volume food
preparation, and, despite somewhat undistinguished food and high prices (or perhaps
because of), all its in-park restaurants were extremely profitable. From this inspiration,
Mickey’s Kitchen was launched. The first two locations were opened in California and
in a suburb of Chicago, adjacent to existing Disney stores. Menu items included
healthy, child-oriented fare like Jumbo Dumbo burgers and even a meatless Mickey
Burger. Eisner thought that locating each restaurant next to existing Disney stores was
sure to increase foot traffic through both venues. Less than 2 years later Disney closed
down the California and Chicago stores and shuttered further expansion plans. Eisner
cited overwhelming competition from McDonalds and general oversaturation in the
fast-food industry as the primary reasons for closing down the failing Mickey’s Kitchen.
What resources and value-chain activities did Disney try to leverage through the
opening of Mickey’s Kitchen?
Define human capital and its importance to the firm’s success.
Describe the importance of internal analysis to the strategic success of the firm. Should
not-for-profit organizations perform internal analysis? Why or Why not?
Why are cooperative strategies often used when firms pursue international strategies?
What are the advantages and disadvantages of international cooperative strategies?
CaseScenario2:Palmetto.
Palmetto was an early pioneer of personal data assistants (PDAs) and dominates that
market space (in terms of market share) with its core product, the Palmetto Pidgy.
Because this product category was entirely new to the market, Palmetto had to
internally develop the hardware and software sides of the business, and today it is both
a manufacturer of PDAs and a programmer and licensor of its PDA operating system
software. Recently, however, the hand-held device maker’s performance has taken a
dive as a result of slumping sales and costly inventory problems. Palmetto has also had
difficulty coordinating its software and hardware businesses, in part because of the near
absence of a coherent structure and the differing economics underlying the two.
Specifically, hardware for PDAs is increasingly a cost-based business, while software is
a highly differentiated one. While Palmetto is doing pretty well in both businesses, its
own resource base does not allow it to compete any differently than that proscribed for
other industry participants (that is, it competes on cost with hardware and features with
software). In addition to the issues created by these fundamental differences, other large
companies are entering both the equipment (such as Sony) and software (such as
Microsoft) sides of its business, putting further pressure on margins. Management has
decided that it is unable to focus on the complexities of each of these businesses so it is
opting to break Palmetto into two separate, independent public companies – Pal, Inc.
will be devoted to hardware and Mettolink, Inc. will be devoted to software.
What basic structural form would you recommend for both Pal and Mettolink? What
must each firm be careful to avoid with this structure?
Describe the primary reasons a firm pursues increased diversification.