Ch. 1 & 2

Question 1

Strategic Management:

Answer 1

The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives

Question 2

Nine Critical Tasks of Strategic Management

Answer 2

Formulate the company’s mission
Conduct internal analysis
Assess the external environment- competitive and general contexts.
Analyze the company’s options by matching its resources with the external environment
Identify the most desirable options in light of the mission
Select long term objectives and grand strategies.
Develop annual objectives and short-term strategies that are compatible with long-term objectives and grand strategies.
Implement the strategic choices
Evaluate the success of the strategic process for future decision making

Question 3

What is Strategy:

Answer 3

Large scale, future oriented, used to interact within competitive environment to achieve company goals.
Provides framework for managerial decisions.
Reflects a company’s awareness of the main elements of competition.

Question 4

Dimensions of Strategic Decisions:

Answer 4

• Strategic issues require top-management team decisions
• Strategic issues require large amounts of the firm’s resources
• Strategic issues often affect the firm’s long-term prosperity
• Strategic issues are future oriented
• Strategic issues usually have multifunctional or multi-business consequences
• Strategic issues require considering the firm’s external environment

Question 5

Corporate Level:

Answer 5

board of directors, CEO and Administration (High)

Greater risk, cost, and profit potential, greater need for flexibility.

Question 6

Business Level:

Answer 6

Business and corporate managers (middle)
Help bridge decisions between corporate and functional, less costly and risky than corporate but more cost and risk than with functional.

Question 7

Functional Level:

Answer 7

Product, geographic, and functional area managers. (lowest)
Overall strategy formulated at the corporate and business levels, action-oriented, short range and low risk. Concrete and quantifiable.

Question 8

Formality in Strategic Management:

Answer 8

Formality is the degree to which participation, responsibility, authority, and discretion in decision making are specified in strategic management.

Question 9

Forces that determine formality:

Answer 9

Size of organization 
Production process 
Problems in the firm 
Purpose of the planning system 
Stage of firm development

Question 10

Three Modes of Formality:

Answer 10

Entrepreneurial:
Planning Mode:
Adaptive Mode:

Question 11

Entrepreneurial:

Answer 11

Most small firms.

Informal, intuitive, and limited approach

Question 12

Planning Mode:

Answer 12

Most large firms

Operate under a comprehensive, formal planning system.

Question 13

Adaptive Mode:

Answer 13

Most medium sized firms

Emphasize the incremental modification of existing competitive approaches.

Question 14

Benefits of a participative approach to strategic management:

Answer 14

Managers at all levels interact in planning and implementing strategy, similar to participating decision making.

Question 15

Grand Strategies:

Answer 15

the means by which objectives are achieved.

Question 16

Functional Tactics:

Answer 16

short-term, narrow scoped plans that detail the “means” or activities that a company will use to achieve short term objectives.

Question 17

Company Mission:

Answer 17

Broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others.

Question 18

Formulating a mission:

Answer 18

Begins with beliefs, desires, and aspirations.

Question 19

Three important aspects to the statement:

Answer 19

Basic product/service, primary market, principal technology.

Question 20

Primary Company Goals:

Answer 20

Survival, Profitability, growth

Question 21

New trends in mission:

Answer 21

sensitivity to customer wants, quality

Question 22

Deming’s 14 points:

Answer 22

Create constancy of purpose
Adopt new philosphy
Cease dependence on mass inspection to achieve quality
End the practice of awarding business on price tag alone, instead minimize total cost.
Improve constantly the system of production and service
Institute training on the job
Institute leadership
Drive out fear
Break down departmental barriers
Eliminate slogans
Eliminate standards
Remove barriers that rob employees of pride of workmanship
Institute a vigorous program of education and self-improvement
Put everyone in the company to work to accomplish the transformation.

Question 23

Agency Theory:

Answer 23

set of ideas in organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored.

Question 24

Agency Costs:

Answer 24

cost of agency problems plus the cost of actions taken to minimize agency problems are collectively terms agency costs.

Question 25

Adverse Selection:

Answer 25

agency problem caused by limited ability of stockholders to determine the competencies and priorities of executives at hire.