Exam 2 Chap6-10

Chapter 6
Vertical
Integration
Vertical Integration
Questions of Outsourcing?
What is offshoring?
Is outsourcing or offshoring good?
What are the ethical implications for
outsourcing?
What are the ethical implications for
offshoring?
What are the implications for different
stakeholder groups?
Copyright 2006 Pearson Prentice Hall. All rights reserved. Strategic Management &
Competitive Advantage - Barney
& Hesterly
Strategic
Management & Competitive Advantage
Barney & Hesterly
22
The Strategic Management Process

External
Analysis
Mission
Strategic
Choice
Objectives
Strategy
Implementation
Competitive
Advantage
Which Businesses
to Enter?
Internal
Analysis
Corporate Level
Strategy
& Hesterly
Strategic
Barney & Hesterly
33
Logic of Corporate Level Strategy

Corporate level strategy should create value:
1) such that the value of the corporate whole increases
2) such that businesses forming the corporate whole
are worth more than they would be under
independent ownership
3) that equity holders cannot create through
portfolio investing
a corporate level strategy should create
synergies that are not available in equity
markets
vertical integration = value chain economies
& Hesterly
Strategic
Barney & Hesterly
44
What is Vertical Integration?

Where your pizza comes from
Dairy Farmers
(milk)
Seed Companies
Pizza Chains
(Alfalfa & Corn)
Leprino Foods
(Mozzarella Cheese)
Crop Farmers
End Consumer
(Alfalfa & Corn)
Food Distributors
& Hesterly
Strategic
Barney & Hesterly
55
What is Vertical Integration?
Dairy Farmers
Backward
Vertical
Integration
(milk)
Seed Companies
Pizza Chains
(Alfalfa & Corn)
Leprino Foods
(Mozzarella Cheese)
Crop Farmers
End Consumer
(Alfalfa & Corn)
Food Distributors
& Hesterly
Strategic
Forward
Vertical
Integration
Barney & Hesterly
66
Value Chain Economies

The Logic of Value Chain Economies
the focal firm is able to
create synergy with the
other firm(s)
Dairy Farmers
Backward
Vertical
Integration
(milk)
cost reduction
revenue enhancement
the focal firm is able to
capture above normal
economic returns
(avoid perfect competition)
Leprino Foods
(Mozzarella Cheese)
Food Distributors
& Hesterly
Strategic
Barney & Hesterly
Forward
Vertical
Integration
77
Competitive Advantage
If a vertical integration strategy meets the
VRIO criteria
Is it Valuable?
Is it Rare?
Is it costly to Imitate?
Is the firm Organized to exploit it?
it may create competitive advantage.
& Hesterly
Strategic
Barney & Hesterly
88
Value of Vertical Integration

Market vs. Integrated Economic Exchange (Coase, 1937)
markets and integrated hierarchies are forms in which
economic exchange can take place
economic exchange should be conducted in the form
that maximizes value for the focal firm
thus, firms assess which form is likely to generate
more value
Integration makes sense when the focal firm can

capture more value than a market exchange provides
& Hesterly
Strategic
Barney & Hesterly
99
Value of Vertical Integration

Three Value Considerations
Leverage
Capabilities
firm capabilities
may be sources
of competitive
advantage in
other businesses
Manage
Opportunism
Exploit
Flexibility
opportunism
may be checked
by internalizing
(TSI)
internalizing is
usually less
flexible
flexibility is
prized when
internalizing must
if not, then dont
uncertainty is
be less costly than
integrate exchange
high
opportunism
& Hesterly
Strategic
Barney & Hesterly
10
10
Rarity of Vertical Integration

Integration vs. Non-Integration
a firms integration strategy may be rare because
the firm integrates or because the firm does not
integrate
thus, the question of rareness does not
depend on the number of forms observed
a firms integration strategy is rare or common with
respect to the value created by the strategy
& Hesterly
Strategic
Barney & Hesterly
11
11
Imitability of Vertical Integration

Form vs. Function
the form, per se, is usually not costly to imitate
the value-producing function of integration may
be costly to imitate, if:
the integrated firm possesses resource
combinations that are the result of:
historical uniqueness
causal ambiguity
social complexity
small numbers prevent further integration
capital requirements are prohibitive
& Hesterly
Strategic
Barney & Hesterly
12
12
Imitability of Vertical Integration

Modes of Entry
acquisition and internal development are alternative
modes of entry into vertical integration
thus, one firm may acquire a supplier while a
competitor could imitate that strategy through
internal development
in both cases, the boundaries of the firm would
encompass the new business
strategic alliances can be viewed as a substitute for
vertical integrationwithout the costs of ownership
& Hesterly
Strategic
Barney & Hesterly
13
13
Organizing Vertical Integration

Functional Structure (U-Form)
CEOs Role
Accounting
Finance
Marketing
HR
Engineering
Original
Business
Original
Business
Original
Business
Original
Business
Original
Business
New
Business
New
Business
New
Business
New
Business
New
Business
Cooperation
Conflict
Cooperation
Conflict
& Hesterly
Strategic
Barney & Hesterly
14
14

Management Controls
What needs to be controlled in a vertically integrated
firm?
managers efforts to achieve the desired value
chain economies
cooperation and competition among and between
functions
the integration of new businesses into the
existing business
time horizon of managers
& Hesterly
Strategic
Barney & Hesterly
15
15

Management Controls
Board
Committees
Budgets
separating strategic and
operational budgets
strategic: inputs
& outputs
provide oversight and

direction to managers
help ensure that strategic
direction is maintained
operational: outputs
These mechanisms focus management attention

on achieving value chain economies
& Hesterly
Strategic
Barney & Hesterly
16
16

Compensation
Salary
Integration
Opportunism
Cash Bonus: Individual

Stock Grants: Individual
Leveraging
Capabilities
Cash Bonus: Group
Cooperation
Stock Grants: Group
Exploiting
Flexibility
Stock Options: Individual
Time Horizon
Stock Options: Group
& Hesterly
Strategic
Barney & Hesterly
17
17
International Expansion
The Cost Control Tradeoff
Cost
(Capital at Risk)
High
Greenfield Investment
Acquisition
Strategic Alliance
Franchising
Licensing
Exporting
Vertically
Integrated
Somewhat
Vertically
Integrated
Not Vertically Integrated
Low
& Hesterly
Strategic
High
Barney & Hesterly
Control
18
18
Summary
makes sense when value chain economies
can be created and captured
may allow a firm to leverage capabilities
may be a response to the threat of opportunism
and uncertainty
as a form of exchange per se, is not rare nor
costly to imitate
& Hesterly
Strategic
Barney & Hesterly
19
19
Summary
is an important consideration in the decision
to expand internationally (range of possibilities)
makes sense when done for the right reasons,
under the right circumstances
can be a costly mistake if done wrong
Ownership is costlyintegrate only when the
benefits outweigh the costs of integration!
& Hesterly
Strategic
Barney & Hesterly
20
20
Chapter 8
Organizing to
Implement
Corporate
Diversification
Copyright 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney &
8-1
Organizing to Implement Corporate Diversification

External
Analysis
Mission
Strategic
Choice
Objectives
Internal
Analysis
Strategy
Implementation
Competitive
Advantage
Implementing
Corporate
Diversification
Copyright 2006 Pearson

Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Advantage - Barney &
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-2
2
Implementation Issues
How Information Flows
Where and By Whom are Decisions Made
How to Influence the Behavior of People

how can the interests of employees
be aligned with the interests of the firm?
Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-3
3
The Need for Organizational Structure

Information Processing Requirements
as organizations become larger and more complex,
information processing requirements exceed
individual capacity
bounded rationality
satisficing
organizational structure divides information
processing into manageable blocks (span of control)

Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-4
4
The Agency Relationship

A Trade Off
M-Form Structure
Divides Information
Processing Requirements
Into Manageable Blocks
Divides Owners
From Managers
Interests of Owners and

Managers May Diverge
Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-5
5
The Agency Relationship

Managing Agency
Principals
Monitors
Individual
Shareholders
Agents
Senior
Executives
Division
General
Managers
Corporate
Staff
Shared
Activity
Managers
Board
Of
Directors
Institutional
Shareholders
Dual
Role

Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-6
6
The Office of the President

Chairman
of the
Board
(monitoring)
Chief
Executive
Officer
(strategy formulation)
Chief
Operating
Officer
(strategy implementation)
Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-7
7
The Office of the President

Information Filtering
information about the divisions businesses
is filtered as it rises to the senior executive
the senior executive can manage the information
flow
information flow should not exceed the
bounded rationality of managers at any
level in the organization
information should flow should be matched
with decision-making authority
Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-8
8
Management Controls
3 Issues
Evaluating
Divisional
Performance
Measurement:
accounting
economic value
added (EVA)
Ambiguity:
allocating costs
& revenues
Allocating
Capital
Playing Games:
managers want
to look good
zero-based
budgeting
Transferring
Intermediate
Products
Setting Prices:
negotiation
cost
market-based
dual pricing

Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-9
9
Compensation Policies
Compensation Committee
In theory
represents interests of owners in setting compensation
of top executive team
sets compensation based on performance or market
In practice
sometimes appear to be beholden to executives
compensation decisions often bear little relationship
to performance
Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-10
10
Refocusing
Corporate level strategy may call for
exiting a business
a conglomeration discount may exist
the corporation may lack necessary skills
expected economies of scope may not exist
the corporation may need funds for core activities
Divest
Assets
MBO
or,
Spin-off
IPO

Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-11
11
International Implementation
Global
Strategy
Centralized Hub:
facilitates global
integration
exploits a
global product
exploits scale
economies
Multi-Domestic
Strategy
Decentralized Federation:
highly autonomous units
very responsive locally
Coordinated Federation:
less autonomous
some shared activities
between divisions

Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-12
12
International Implementation
Transnational
Structure
facilitates both local responsiveness
and global integration
country managers are responsible for
exploiting economies of scope
corporate HQ constantly scans the
globe looking for best practices
Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-13
13
Summary
Successful implementation is a matter of:
appropriately breaking information processing
into manageable blocks
aligning the interests of owners and managers
These can be accomplished through:

Organizational Structure
Management Controls
Compensation Policies
Prentice
Hall. All rights
reserved. Strategic
Management
& Competitive
Strategic
Management
& Competitive
Advantage
Barney
& Hesterly
8-14
14
Chapter 9
Strategic
Alliances
Strategic Alliances

External
Analysis
Mission
Strategic
Choice
Objectives
Strategy
Implementation
Competitive
Advantage
Which Businesses
to Enter?
Internal
Analysis
Corporate Level
Strategy
Diversification
Strategic Alliances
mode of entry
& Hesterly
Strategic
Barney & Hesterly
22
Strategic Alliances
Strategic Alliances Defined
Strategic Alliance:
Any cooperative effort between two or more
independent organizations to develop,
manufacture, or sell products or services
& Hesterly
Strategic
Barney & Hesterly
33
Strategic Alliances
Motivation for Alliances

Create economic value by:
accessing complementary resources and capabilities
leveraging existing resources and capabilities
An alliance is an organizational form of exchange

that:
should produce a gain from trade due to
some comparative or absolute advantage
Implication: Choose partners that are better at

something than you are (complementary resources)
& Hesterly
Strategic
Barney & Hesterly
44
Strategic Alliances
Three Types
Of
Alliances
Nonequity
Alliance
Contracts
licensing
supply &
distribution
agreements
Joint
Venture
Equity
Alliance
Cross Equity
Holdings
partners own
stakes in
eachother
& Hesterly
Strategic
Joint Equity
Holdings
independent
firm is
created
Barney & Hesterly
55
Strategic Alliances
How Strategic Alliances Create Value

Improve Current Operations
Value
Creation
Shaping the Competitive Environment
Facilitating Entry and Exit
& Hesterly
Strategic
Barney & Hesterly
66
Strategic Alliances

Improving Current Operations
Exploiting economies of scale
a partner brings increased market share
and/or manufacturing capacity
Learning from partners
a partner brings technology and/or
market knowledge
Risk and cost sharing
a partner bears a portion of the risk and/or
cost of the alliance
& Hesterly
Strategic
Barney & Hesterly
77
Strategic Alliances

Creating a Favorable Competitive Environment
Network Industries
increasing returns to scale
Facilitating technology standards
partners may agree on a standard and avoid
a market battle for the standard
Facilitating tacit collusion
partners may communicate within an alliance
in subtle, legal ways whereas the same
communication between competitors outside
an alliance would be illegal
& Hesterly
Strategic
Barney & Hesterly
88
Strategic Alliances

Facilitating Entry and Exit
Low-cost entry into new industries
a partner provides instant access and legitimacy
Low-cost exit from industries
a partner is an informed buyer
Managing uncertainty
alliances may serve as real options
Low-cost entry into new geographic markets
partners provide local market knowledge, access,
and legitimacy with governments and customers
& Hesterly
Strategic
Barney & Hesterly
99
Strategic Alliances
Challenges to Value Creation and Allocation

Incentives to Misappropriate Value (Cheat)
An alliance is an exchange context in which:
partner inputs may be difficult to monitor
actual value creation may be difficult to monitor
value appropriation (allocating the value) may be:
difficult to monitor
subject to power dynamics
& Hesterly
Strategic
Barney & Hesterly
10
10
Strategic Alliances
Challenges to Value Creation and Allocation

Three Forms
of
Misappropriating
Value
Holdup
Adverse
Selection
Moral
Hazard
misrepresenting
the value of inputs
providing inputs
of lesser value
than promised
exploiting the transactionspecific investment of partners

& Hesterly
Strategic
Barney & Hesterly
11
11
Strategic Alliances
Sustained Competitive Advantage

Are strategic alliances rare?
As a form of organizing economic exchange, NO!
However,
The sources of value creation within alliances
may be rare.
firms may form a combination of complementary
resources within an alliance that is rare
the stock of such complementary resources may
be limited so that first movers have a rare combination
& Hesterly
Strategic
Barney & Hesterly
12
12
Strategic Alliances

Are strategic alliances costly to imitate?
As a form of organizing economic exchange, NO!
the organizational form per se is easily duplicated
However,
The resource combinations that create value in
alliances may be very costly, if not impossible,
to imitate if:
the value creating combination depends on
social complexity (trust), causal ambiguity,
and/or historical uniqueness
& Hesterly
Strategic
Barney & Hesterly
13
13
Strategic Alliances

Are strategic alliances substitutable?
Internal
Development:
Going It Alone
If:
no partner
is available
Mergers &
Acquisitions
If:
Substitutes for
Strategic Alliances
transaction-specific
investment is high
low uncertainty about
the investment
there are no
anti-trust issues
low uncertainty about
the investment
firms can be
integrated easily
value of combined firms is
not tied to independence
& Hesterly
Strategic
Barney & Hesterly
14
14
Strategic Alliances
Organizing Strategic Alliances

Governance Responses to the Challenges of
Value Creation and Allocation
Formal/Codified
Explicit Contracts
& Legal Sanctions
creates mutual
understanding
imposes costs
for cheating
conflict resolution
Joint Ventures
Equity Investments
aligns interests of
partners through
ownership of
independent firm
direct effect
aligns interests of
partners through
ownership in
each other
indirect effect
& Hesterly
Strategic
Barney & Hesterly
15
15
Strategic Alliances

Informal
Trust
may allow partners
to exploit opportunities
that would be infeasible
with other mechanisms
& Hesterly
Strategic
Firm Reputations
the shadow of the
future constrains
cheating
Barney & Hesterly
16
16
Strategic Alliances

These responses are not mutually exclusive:
contracts may be used with equity investments
and joint ventures along with firm reputation
and trust
reputation and trust come into play in every type
of alliance
Reputation and trust may be sources of competitive

advantage because they are costly to imitate
& Hesterly
Strategic
Barney & Hesterly
17
17
Strategic Alliances
International Expansion
Alliances may be attractive because:
local market knowledge is usually critical
governments may require a local partner
international expansion may be:
fraught with uncertainty
high risk
expensive
alliance investment may be more easily reversed
than internal development or acquisition
& Hesterly
Strategic
Barney & Hesterly
18
18
Strategic Alliances
Summary
Successful alliance managers will:
create alliances that will produce gains
from tradecomplementary resources
identify the sources of value creation
assess the likelihood of challenges to value
creation and allocation
adopt appropriate governance responses to
the challenges to value creation and allocation
& Hesterly
Strategic
Barney & Hesterly
19
19
Strategic Alliances
Summary
Alliances may generate competitive advantage if:
combinations of complementary resources
meet the VRIO criteria
governance responses meet the VRIO criteria
The Big Challenge of Strategic Alliances:

Maximizing gains from trade while
minimizing the threat of cheating
& Hesterly
Strategic
Barney & Hesterly
20
20
Chapter 10
Mergers and
Acquisitions
Competitive Advantage - Barney & Hesterly
10-1
Mergers
Mergersand
& Acquisitions
Acquisitions

External
Analysis
Mission
Strategic
Choice
Objectives
Strategy
Implementation
Competitive
Advantage
Which Businesses
to Enter?
Internal
Analysis
Corporate Level
Strategy
Diversification
Mode of Entry?
Strategic Alliances
Mergers &
Acquisitions
& Hesterly
Strategic
Barney & Hesterly
10-2
2
Mergers
Mergersand
& Acquisitions
Acquisitions
Logic of Corporate Level Strategy Applies

Corporate level strategy should create value:
1) such that the value of the corporate whole increases
2) such that businesses forming the corporate whole

are worth more than they would be under
independent ownership
3) that equity holders cannot create through

portfolio investing
& Hesterly
Strategic
Barney & Hesterly
10-3
3
Mergers
Mergersand
& Acquisitions
Acquisitions
Mergers & Acquisitions Defined

Mergers
two firms are combined on
a relatively co-equal basis
Acquisitions
one firm buys another
firm
the words are often used interchangeably even

though they mean something very different
merger sounds more amicable, less threatening
& Hesterly
Strategic
Barney & Hesterly
10-4
4
Mergers
Mergersand
& Acquisitions
Acquisitions

Mergers
parent stocks are usually

retired and new stock issued
name may be one of the
parents or a combination
one of the parents usually
emerges as the dominant
management
& Hesterly
Strategic
Acquisitions
can be a controlling
share, a majority, or
all of the target firms
stock
can be friendly or
hostile
usually done through
a tender offer
Barney & Hesterly
10-5
5
Mergers
Mergersand
& Acquisitions
Acquisitions

Types of M&A Activity
FTC
Categories
Vertical
Horizontal
suppliers or customers
competitors
Related
Product Extension complementary products
Market Extension complementary markets
Unrelated
Conglomerate
everything else
& Hesterly
Strategic
Barney & Hesterly
10-6
6
Mergers
Mergersand
& Acquisitions
Acquisitions
Do Mergers and Acquisitions Create Value?

The Logic
Unrelated M&A Activity
there would be no expectation of value creation
due to the lack of synergies between businesses
there might be value creation due to efficiencies
from an internal capital market
there might be value creation due to the exploitation
of a conglomerate discount
a corporate raider who buys and restructures firms
& Hesterly
Strategic
Barney & Hesterly
10-7
7
Mergers
Mergersand
& Acquisitions
Acquisitions

The Logic
Related M&A Activity
value creation would be expected due to
synergies between divisions
economies of scale
economies of scope
transferring competencies
sharing infrastructure, etc.
& Hesterly
Strategic
Barney & Hesterly
10-8
8
Mergers
Mergersand
& Acquisitions
Acquisitions

The Empirical Evidence
Research is based on stock market reaction to the
announcement of M&A activity
this reflects the markets assessment of the
expected value of the merger or acquisition
these studies look at what happens to the price
of both the acquirers stock and the targets stock
thus, we can see who is capturing any expected
value that may be created
& Hesterly
Strategic
Barney & Hesterly
10-9
9
Mergers
Mergersand
& Acquisitions
Acquisitions

The Empirical Evidence
M&A Activity creates value, on average, as follows:
Acquiring
Firms
Target
Firms
no value created
value increases by
about 25%
related M&A activity creates more value than

unrelated M&A activity
M&A activity creates value, but target firms capture it

& Hesterly
Strategic
Barney & Hesterly
10-10
10
Mergers
Mergersand
& Acquisitions
Acquisitions
Entrepreneurship in M & As (p.318)
Business Angels
Venture Capital Firms (VC)
Initial Public Offering (IPO)
Cashing Out
& Hesterly
Strategic
Barney & Hesterly
10-11
11
Mergers
Mergersand
& Acquisitions
Acquisitions
Why is M&A Activity So Prevalent?

If managers know that acquiring firms do not
capture any value from M&As, why do they
continue to merge and acquire?
Survival
avoid competitive disadvantage

avoid scale disadvantages
Free Cash
Flow
cash generating, normal return investment
& Hesterly
Strategic
Barney & Hesterly
10-12
12
Mergers
Mergersand
& Acquisitions
Acquisitions

Agency
Problems
Managerial
Hubris
managers benefit from increases in size

managers benefit from diversification
managers believe they can beat the odds
& Hesterly
Strategic
Barney & Hesterly
10-13
13
Mergers
Mergersand
& Acquisitions
Acquisitions

some M&A activity does generate
above normal profits (expected and
operational over the long run)
Above Normal
Profits
proposed M&A activity may satisfy

the logic of corporate level strategy
managers may see economies that
the market cant see
& Hesterly
Strategic
Barney & Hesterly
10-14
14
Mergers
Mergersand
& Acquisitions
Acquisitions
Can an M&A strategy generate sustained
competitive advantage?
Yes, if managers abilities meet VRIO criteria
1
Managers may be good at recognizing & exploiting

potentially value-creating economies with other firms
Managers may be good at doing deals
Managers may be good at both
& Hesterly
Strategic
Barney & Hesterly
10-15
15
Mergers
Mergersand
& Acquisitions
Acquisitions
Recognizing and Exploiting Economies of Scope
Private Economies
Firm Cs recognized
value is $10,000
Firm A
Firm C
Firm B
Bidders
Target
& Hesterly
Strategic
Firm A sees value

of $12,000 in Firm C
Firm A can earn a
profit of $2,000
only if the economy
remains private
Barney & Hesterly
10-16
16
Mergers
Mergersand
& Acquisitions
Acquisitions
Costly-to-Imitate
Economies
Firm A
Firm C
Firm B
Bidders
Target
& Hesterly
Strategic
if the economy
between A & C
is costly to imitate,
it doesnt matter
if other firms know
Firm A can still earn
a $2,000 profit
Barney & Hesterly
10-17
17
Mergers
Mergersand
& Acquisitions
Acquisitions
Unexpected
Economies
Firm C has a market
value of $10,000
Firm A
Firm C
Firm B
Bidders
Firm A buys Firm C

for $10,000
Firm C turns out to be
worth $12,000
Target
& Hesterly
Strategic
Barney & Hesterly
10-18
18
Mergers
Mergersand
& Acquisitions
Acquisitions
Doing the Deal
Search for
Rare Economies
Limit Information
to Other Bidders
Seek Thinly
Traded Markets
Close the
Deal Quickly
Bidding Firms
Perspective
Limit Information
to the Target
Avoid Bidding
Wars
& Hesterly
Strategic
Barney & Hesterly
10-19
19
Mergers
Mergersand
& Acquisitions
Acquisitions
Doing the Deal
Seek Information
from Bidders
Target Firms
Perspective
Invite Other Bidders to

Join in Bidding Contest
Delay, But Do Not

Stop the Acquisition
& Hesterly
Strategic
Barney & Hesterly
10-20
20
Mergers
Mergersand
& Acquisitions
Acquisitions
Structure, Control, and Compensation
M&A activity requires responses to these issues:
m-form structure is typically used
management controls & compensation policies
are similar to those used in diversification strategies
Managers must decide on the level of integration:
target firm may remain somewhat autonomous
target firm may be completely integrated
& Hesterly
Strategic
Barney & Hesterly
10-21
21
Mergers
Mergersand
& Acquisitions
Acquisitions
Cultural Differences
high levels of integration require greater cultural
blending
cultural blending may be a matter of:
combining elements of both cultures
essentially replacing one culture with the other
integration may be very costly, often unanticipated
the ability to integrate efficiently may be a source
of competitive advantage
& Hesterly
Strategic
Barney & Hesterly
10-22
22
Mergers
Mergersand
& Acquisitions
Acquisitions
Target Response Strategies to a

Takeover Attempt
Reduce the wealth of target firm equity holders.
Greenmail
Standstill Agreements
Poison Pills
Do not affect wealth of target firm equity holders.
Shark Repellents
Pac Man Defense
Crown Jewel Sale
Law Suits
& Hesterly
Strategic
Barney & Hesterly
10-23
23
Mergers
Mergersand
& Acquisitions
Acquisitions
Target Response Strategies to a

Takeover Attempt
Increase the wealth of the target firm
equity holders.
White Knights
Create a Bidding Auction
Golden Parachutes
& Hesterly
Strategic
Barney & Hesterly
10-24
24
Mergers
Mergersand
& Acquisitions
Acquisitions
International Issues
Government Policy
governments may constrain ownership by
foreign firms
governments may restrict repatriation of profits
government labor policy may limit a firms ability
to apply management practices to target firm
& Hesterly
Strategic
Barney & Hesterly
10-25
25
Mergers
Mergersand
& Acquisitions
Acquisitions
International Issues
Cultural Issues
Individualism
Social Orientation
Collectivism
Respect
Power Orientation
Tolerance
Acceptance
Uncertainty Orientation
Avoidance
Aggressive
Goal Orientation
Passive
Long-term
Time Orientation
Short-term
(Hofstede, 1980)
& Hesterly
Strategic
Barney & Hesterly
10-26
26
Mergers
Mergersand
& Acquisitions
Acquisitions
Summary
M&A activity is a mode of entry for vertical
integration and diversification strategies
A firms M&A strategy should satisfy the
logic of corporate level strategy
M&A activity can create economic value at
announcement, but target firms usually capture
that value
M&A activity can create value over the long term
for the acquiring firm
& Hesterly
Strategic
Barney & Hesterly
10-27
27

Exam 2 Chap6-10

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Exam 2 Chap6-10

Caricato da

Copyright:

Formati disponibili

Chapter 6

Barney & Hesterly

The Strategic Management Process

Barney & Hesterly

Logic of Corporate Level Strategy

Barney & Hesterly

What is Vertical Integration?

(Alfalfa & Corn)

(Alfalfa & Corn)

Barney & Hesterly

What is Vertical Integration?

(Alfalfa & Corn)

(Alfalfa & Corn)

Value Chain Economies

Barney & Hesterly

Barney & Hesterly

Value of Vertical Integration

Integration makes sense when the focal firm can

Barney & Hesterly

Value of Vertical Integration

Barney & Hesterly

Rarity of Vertical Integration

Barney & Hesterly

Imitability of Vertical Integration

Barney & Hesterly

Imitability of Vertical Integration

Barney & Hesterly

Organizing Vertical Integration

Barney & Hesterly

Organizing Vertical Integration

Barney & Hesterly

Organizing Vertical Integration

provide oversight and

These mechanisms focus management attention

Barney & Hesterly

Organizing Vertical Integration

Cash Bonus: Individual

Cash Bonus: Group

Stock Grants: Group

Stock Options: Individual

Stock Options: Group

Barney & Hesterly

Not Vertically Integrated

Barney & Hesterly

Barney & Hesterly

Organizing to Implement Corporate Diversification

The Strategic Management Process

Copyright 2006 Pearson

Organizing to Implement Corporate Diversification

Where and By Whom are Decisions Made

How to Influence the Behavior of People

Organizing to Implement Corporate Diversification

The Need for Organizational Structure

Copyright 2006 Pearson

Organizing to Implement Corporate Diversification

The Agency Relationship

Interests of Owners and

Organizing to Implement Corporate Diversification

The Agency Relationship

Copyright 2006 Pearson

Organizing to Implement Corporate Diversification

The Office of the President

Organizing to Implement Corporate Diversification