Answer these questions

Question1:Under what circumstance is product diversification an agency problem?Question2: h t t p s:// the YouTube video. Explain the agency relationship shown in the video. In the relationship who is the principal and who is the agent?Please remember every question’s answer maximum is 200 words. This is not an essay format.


Don't use plagiarized sources. Get Your Custom Essay on
Answer these questions
Just from $13/Page
Order Essay

Unformatted Attachment Preview

Chapter 10
Corporate Governance
Corporate Governance
• Corporate governance is:
– the set of mechanisms used to manage relationships
among stakeholders and to determine and control the
strategic direction and performance of organizations.
– concerned with identifying ways to ensure that
strategic decisions are made more effectively.
– used in corporations to establish harmony between
the firm’s owners and its top-level managers whose
interests may be in conflict.
The Tyco Tale
Who is Dennis Kozlowski?
What did he do at Tyco?
Why would he do that to Tyco?
Who were the losers?
Are there any other companies known for
accounting fraud?
Stakeholders and Corporate Performance
• Stakeholders: Individuals or groups with an
interest, claim, or stake in the company, in what
it does, and in how well it performs.
– Internal Stakeholders (e.g. employees, shareholders,
– External Stakeholders (e.g. customers, creditors,
governments, etc.)
• A company must consider stakeholder claims in
developing and implementing strategy
Stakeholders and the Enterprise
Stakeholders at Ford
? Employees
? Customers
? Dealers
? Suppliers
? Investors
? Communities
? Society
? Government agencies
? Nongovernmental organizations (NGOs)
? Academia
Stakeholder Impact Analysis
Identify stakeholders
Identify stakeholders’ interests and concerns
Identify what claims stakeholders are likely to
make on the organization
Identify stakeholders who are most important,
from the organization’s perspective
Identify resulting strategic challenges
Separation of Ownership and
Managerial Control
• Introduction
– Historically, firms managed by founder-owners &
– Separation of ownership and managerial control allow
shareholders to purchase stock, entitling them to
income (residual returns) – implies ‘risk’ for this group
who manage their investment risk
– Shareholder value reflected in price of stock
Separation of Ownership and
Managerial Control
• Agency relationships
– Relationships between business owners (principals)
and decision-making specialists (agents) hired to
manage principals’ operations and maximize returns on
investment (and focus of this chapter)
• Principal: person delegating authority
• Agent: person to whom authority is delegated
– Other agency relationship examples:
Consultants/clients; insured/insurer; manager/employee
Separation of Ownership and
Managerial Control (Cont’d)
• Agency problems
– Agents and principals may have different goals
– Agents may pursue goals that are not in the best
interests of their principals
– Agents may take advantage of information
asymmetries to maximize their interests at the
expense of principals
• Managerial Opportunism: Seeking self-interest with
guile (i.e., cunning or deceit)
– Principals establish governance and control
mechanisms to prevent agents from acting
Agency Problem: Product Diversification
• Agency problems: Product diversification
– Can result in 2 manager benefits shareholders “don’t
• 1. Increase in firm size
• 2. Firm portfolio diversification which can reduce top
executives’ employment risk (i.e., job loss, loss of
compensation and loss of managerial reputation)
– Diversification reduces these risks because a firm and
its managers are less vulnerable to the reduction in
demand associated with a single or limited number of
product lines or businesses
Manager and Shareholder Risk and
Ownership Concentration
Concentration (a)
• Large block shareholders have
a strong incentive to monitor
management closely
– Their large stakes make it worth
their while to spend time, effort and
expense to monitor closely
– They may also obtain board seats
which enhances their ability to
monitor effectively
• Financial institutions are legally
forbidden from directly holding
board seats.
Ownership Concentration (cont’d)
Concentration (b)
• The increasing influence of
institutional owners (stock
mutual funds and pension
– have the size (proxy voting power)
and incentive (demand for returns to
funds) to discipline ineffective toplevel managers.
– can affect the firm’s choice of
Board of Directors
Board of Directors (a)
• Board of directors
– Group of elected individuals that
acts in the owners’ interests to
formally monitor and control the
firm’s top-level executives
• Board has the power to:
– direct the affairs of the organization
– punish and reward managers
– protect owners from managerial
Board of Directors (cont’d)
Board of Directors (b)
• Composition of Boards
– Insiders: the firm’s CEO and other
top-level managers.
– Related Outsiders: individuals
uninvolved with day-to-day
operations, but who have a
relationship with the firm.
– Outsiders: individuals who are
independent of the firm’s day-to-day
operations and other relationships.
Board of Directors (cont’d)
Board of Directors (c)
• Criticisms of Boards of Directors
– Too readily approve managers’
self-serving initiatives
– Exploited by managers with
personal ties to board members
– Not vigilant enough in hiring and
monitoring CEO behavior
– Lack of agreement about the
number of and most appropriate
role of outside directors
CEO Duality
Executive Compensation
Board of Directors
• Forms of compensation
– Salaries, bonuses, long-term
performance incentives, stock
awards, stock options
• Factors complicating executive
– Strategic decisions by top-level
managers are complex, non-routine
and affect the firm over an extended
– Other variables affecting the firm’s
performance over time
Executive Compensation (cont’d)
Board of Directors
• Limits on the effectiveness of
executive compensation
– Unintended consequences of stock
– Firm performance not as important
as firm size
– Balance sheet not showing
executive wealth
– Options not expensed at the time
they are awarded
Market for Corporate Control
Board of Directors
Market for Corporate
Control (a)
• Individuals and firms buy or
take over undervalued firms
– Ineffective managers are usually
replaced in such takeovers.
• Threat of takeover may lead
firm to operate more efficiently
• Changes in regulations have
made hostile takeovers difficult
Market for Corporate Control (cont’d)
Board of Directors
• Managerial defense tactics increase
the costs of mounting a takeover
• Defense tactics
– Asset restructuring
– Changes in the financial structure of
the firm
– Shareholder approval
Market for Corporate
Control (b)
• Market for corporate control lacks
the precision of internal governance
International Corporate Governance
• Corporate Governance in Germany
– Concentration of ownership is strong
– Banks exercise significant power as a source of
financing for firms
– Two-tiered board structures, required for larger
employers, place responsibility for monitoring and
controlling managerial decisions and actions with
separate groups
– Power sharing includes representation from the
community as well as unions
International Corporate Governance
• Corporate Governance in Japan
– Cultural concepts of obligation, family, and consensus
affect attitudes toward governance
– Close relationships between stakeholders and a
company are manifested in cross-shareholding, and
can negatively impact efficiencies
– Banks play an important role in financing and
monitoring large public firms
– Despite the counter-cultural nature of corporate
takeovers, changes in corporate governance have
introduced this practice
Strategy and Ethical Behavior
? Business ethics
Accepted principles of right or wrong governing the conduct
of businesspeople
? Discussion Question:
? During the late 1990s, there was a boom in initial public
offerings of Internet companies ( companies). The
boom was supported by sky-high valuations often
assigned to Internet start-ups that had no revenues or
earnings. The boom came to an abrupt end in 2001 when
the NASDAQ stock market collapsed, losing almost 80% of
its value. Who do you think benefited most from this boom:
investors (stockholders) in those companies, managers, or
investment bankers?
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit to search by ISBN, author, title, or keyword for
materials in your areas of interest.
Important notice: Media content referenced within the product description or the product
text may not be available in the eBook version.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Want to turn C’s
into A’s? Obviously, right?
But the right way to go about it isn’t always so obvious. Go digital to
get the grades. MindTap’s customizable study tools and eTextbook
give you everything you need all in one place.
Engage with your course content, enjoy the flexibility of
studying anytime and anywhere, stay connected to assignment due
dates and instructor notifications with the MindTap Mobile app…
and most of all…EARN BETTER GRADES.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Competitiveness & Globalization
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Competitiveness & Globalization
Michael A. Hitt
Texas A&M University
Texas Christian University
R. Duane Ireland
Texas A&M University
Robert E. Hoskisson
Rice University
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Strategic Management: Competitiveness &
Globalization: Concepts, 12e
© ????, ???? Cengage Learning®
Michael A. Hitt, R. Duane Ireland, and
Robert E. Hoskisson
ALL RIGHTS RESERVED. No part of this work covered by the copyright
herein may be reproduced, transmitted, stored, or used in any form
or by any means graphic, electronic, or mechanical, including but not
limited to photocopying, recording, scanning, digitizing, taping, Web
distribution, information networks, or information storage and retrieval
systems, except as permitted under Section ??? or ??? of the ????
United States Copyright Act, without the prior written permission of the
Vice President, General Manager, Social
Science & Qualitative Business:
Erin Joyner
Product Director: Jason Fremder
Senior Product Manager: Scott Person
WCN: 01-100-101
Content Developer: Tara Singer
Product Assistant: Brian Pierce
Marketing Director: Kristen Hurd
Marketing Manager: Emily Horowitz
Marketing Coordinator: Christopher Walz
Senior Content Project Manager: Kim
For product information and technology assistance, contact us at
Cengage Learning Customer & Sales Support, 1-800-354-9706
For permission to use material from this text or product,
submit all requests online at
Further permissions questions can be emailed to
Manufacturing Planner: Ron Montgomery
Unless otherwise noted all items © Cengage Learning.
Production Service: Cenveo Publisher
Library of Congress Control Number: ??????????
Senior Art Director: Linda May
Cover/Internal Designer: Tippy McIntosh
Cover Image: © RomanOkopny/Getty
Intellectual Property
Analyst: Diane Garrity
Project Manager: Sarah Shainwald
Strategic Focus: © RomanOkopny/Getty
Watercolor opener: © BerSonnE/Getty
ISBN: ???-?-???-?????-?
Cengage Learning
?? Channel Center Street
Boston, MA ?????
Cengage Learning is a leading provider of customized learning solutions
with employees residing in nearly ?? di?erent countries and sales in
more than ??? countries around the world. Find your local representative
Cengage Learning products are represented in Canada
by Nelson Education, Ltd.
To learn more about Cengage Learning Solutions,
Purchase any of our products at your local college store or
at our preferred online store
Printed in Canada
Print Number: 01
Print Year: 2016
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
To My Family:
I love each and every one of you. Thank you for all of your love and
To Mary Ann:
“Now everyone dreams of a love lasting and true.” This was my dream
that you have completely fulfilled. Thank you for all of the love, support,
and encouragement throughout our life together.
To Kathy:
My love for you is eternal, and I hope that we can be eternally together.
Thanks for all the support and love you’ve given me throughout my life.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Brief Contents
Preface, xv
About the Authors, xxii
Part 1: Strategic Management Inputs
Strategic Management and Strategic Competitiveness, 2
The External Environment: Opportunities, Threats, Industry Competition,
and Competitor Analysis, 38
The Internal Organization: Resources, Capabilities, Core Competencies,
and Competitive Advantages, 76
Part 2: Strategic Actions: Strategy Formulation
Business-Level Strategy, 108
Competitive Rivalry and Competitive Dynamics, 142
Corporate-Level Strategy, 172
Merger and Acquisition Strategies, 204
International Strategy, 236
Cooperative Strategy, 276
Part 3: Strategic Actions: Strategy Implementation
10. Corporate Governance, 308
11. Organizational Structure and Controls, 344
12. Strategic Leadership, 382
13. Strategic Entrepreneurship, 416
Part 4: Preparing an Effective Case Analysis
Name Index, I-1
Company Index, I-20
Subject Index, I-23
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface xv
About the Authors xxii
Part 1: Strategic Management Inputs 2
1: Strategic Management and Strategic Competitiveness 2
Opening Case: Alibaba: An Online Colossus in China Goes Global 3
1-1 The Competitive Landscape 7
1-1a The Global Economy 8
1-1b Technology and Technological Changes 10
Strategic Focus: Starbucks Is “Juicing” Its Earnings per Store through Technological Innovations 11
1-2 The I/O Model of Above-Average Returns 14
1-3 The Resource-Based Model of Above-Average Returns 16
1-4 Vision and Mission 18
1-4a Vision 18
1-4b Mission 19
1-5 Stakeholders 19
Strategic Focus: The Failure of BlackBerry to Develop an Ecosystem of Stakeholders 20
1-5a Classifications of Stakeholders 21
1-6 Strategic Leaders 25
1-6a The Work of Effective Strategic Leaders 25
1-7 The Strategic Management Process 26
Summary 28 • Key Terms 28 • Review Questions 29 • Mini-Case 29 • Notes 30
2: The External Environment: Opportunities, Threats, Industry
Competition, and Competitor Analysis 38
Opening Case: Are There Cracks in the Golden Arches? 39
2-1 The General, Industry, and Competitor Environments 41
2-2 External Environmental Analysis 43
2-2a Scanning 43
2-2b Monitoring 44
2-2c Forecasting 44
2-2d Assessing 45
2-3 Segments of the General Environment 45
2-3a The Demographic Segment 45
2-3b The Economic Segment 48
2-3c The Political/Legal Segment 49
2-3d The Sociocultural Segment 50
2-3e The Technological Segment 51
2-3f The Global Segment 52
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
2-3g The Sustainable Physical Environment Segment 53
Strategic Focus: Target Lost Its Sway Because Tar-zhey No Longer Drew the Customers 54
2-4 Industry Environment Analysis 55
2-4a Threat of New Entrants 56
2-4b Bargaining Power of Suppliers 59
2-4c Bargaining Power of Buyers 60
2-4d Threat of Substitute Products 60
2-4e Intensity of Rivalry among Competitors 60
2-5 Interpreting Industry Analyses 63
2-6 Strategic Groups 63
Strategic Focus: Watch Out All Retailers, Here Comes Amazon; Watch Out Amazon, Here Comes 64
2-7 Competitor Analysis 65
2-8 Ethical Considerations 67
Summary 68 • Key Terms 68 • Review Questions 68 • Mini-Case 69 • Notes 70
3: The Internal Organization: Resources, Capabilities, Core
Competencies, and Competitive Advantages 76
Opening Case: Data Analytics, Large Pharmaceutical Companies, and
Core Competencies: A Brave New World 77
3-1 Analyzing the Internal Organization 79
3-1a The Context of Internal Analysis 79
3-1b Creating Value 81
3-1c The Challenge of Analyzing the Internal Organization 81
3-2 Resources, Capabilities, and Core Competencies 84
3-2a Resources 84
Strategic Focus: Strengthening the Superdry Brand as a Foundation to Strategic Success 85
3-2b Capabilities 88
3-2c Core Competencies 89
3-3 Building Core Competencies 89
3-3a The Four Criteria of Sustainable Competitive Advantage 89
3-3b Value Chain Analysis 93
3-4 Outsourcing 96
3-5 Competencies, Strengths, Weaknesses, and Strategic Decisions 96
Strategic Focus: “We’re Outsourcing that Activity but Not That One? I’m Surprised!” 97
Summary 98 • Key Terms 99 • Review Questions 99 • Mini-Case 100 • Notes 101
Part 2: Strategic Actions: Strategy Formulation 108
4: Business-Level Strategy 108
Opening Case: Hain Celestial Group: A Firm Focused on “Organic” Differentiation 109
4-1 Customers: Their Relationship with Business-Level Strategies 112
4-1a Effectively Managing Relationships with Customers 112
4-1b Reach, Richness, and Affiliation 113
4-1c Who: Determining the Customers to Serve 114
4-1d What: Determining Which Customer Needs to Satisfy 114
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
4-1e How: Determining Core Competencies Necessary to Satisfy Customer Needs 115
4-2 The Purpose of a Business-Level Strategy 116
4-3 Types of Business-Level Strategies 117
4-3a Cost Leadership Strategy 118
4-3b Differentiation Strategy 122
Strategic Focus: Apple vs. Samsung: Apple Differentiates and Samsung Imperfectly Imitates 126
4-3c Focus Strategies 127
4-3d Integrated Cost Leadership/Differentiation Strategy 129
Strategic Focus: RadioS …
Purchase answer to see full

Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Professional and Experienced Academic Writers

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.


Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.


Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.


Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.


Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.

Order your essay today and save 15% with the discount code DISCOUNT15