Ch 11 Flashcards
The process an organization uses to formulate and implement its business strategies.
Strategic Management Process
What are the three stages of the strategic management process?
1) strategic formulation (creating a plan)
2) strategic implementation (putting the plan into action)
3) strategic evaluation (monitoring the results to determine whether the plan works as envisioned)
A broad expression of an entity’s goals. It specifies the products or services the organization provides, its stakeholders and what is important to the organization.
Mission Statement
What are the basic components of strategy formulation?
- analysis of external and internal environments
- Development of long-term strategies and organizational goals
- Determination of strategy at different organizational levels
A method of evaluating the internal and external environments by assessing the organization’s internal strengths and weaknesses and it’s external opportunities and threats
SWOT analysis
What is an SWOT analysis typically used for?
To enable executives to determine how receptive the market would be to its products and services and its competitive position within the market.
What should an organization’s goals reflect?
An understanding of its identity, customers, and purpose.
An organizational structure in which departments are defined by the operations they perform
Functional structure
What are the considerations when implementing strategies?
- Designing the structure of the organization
- Deciding what degree of centralization is needed to operate efficiently and to meet organizational goals
What type of structure is a diversified company more likely to use?
Multidivisional structure
An organizational structure in which divisions are organized into separate profit centers.
Multidivisional structure
A business-level strategy through which the company seeks cost efficiencies in all operational areas
Cost leadership
What are the four steps of the control process? (Strategy evaluation)
- Establish standards
- create and apply measurements 3. Compare actual results to standards
- Evaluate and implement corrective actions if goals are not met
Strategy implementation steps
Create a documented roadmap of the specific processes, tasks and responsibilities necessary to disseminate the corporate strategies throughout the organization
/communicate information regarding the strategies clearly, frequently, and completely through the organization
- assign specific responsibilities, tasks, authority, and accountability throughout the organization.
- allocate adequate resources for successful implementation. Resources include staff, training, time, equipment, data, and technology
- manage variances between the goals and the mid-year results;make necessary adjustments to achieve goals
What are the categories of organizational controls used to monitor goals?
- financial (loss ratio, expense ratio, combined ratio, stock price)
- operational/process (processes to monitor workflow, production processes, customer service. Ex. Average cost of settlement, average caseload per adjuster)
- human/behavior (rules, policies, procedures)
Environment that affects all businesses.
General environment
Environment that includes an organization’s customers , competitors, suppliers, describes the environmental factors specific to the industry.
Task environment.
a method of evaluating the external environment in which a company operates. Involves assessing 5 forces that drive competition:
- threat of new entrants
- threat of substitute products/ services
- bargaining power of buyers
- bargaining power of suppliers
- rivalry among existing firms
Five forces model
How do insurers raise the barrier to enter the market?
- technology (cost to write large amount of business is low while new companies have to rely on people. These companies can charge lower premiums)
- establish leadership in certain distribution methods (produce relationships)
- stay statute and regulatory policy
- present of switching costs
- need for large amount of capital
How does the bargaining power of buyers drive competition?
Consumers are price sensitive when it comes to products which are undifferentiated, expensive relative to income, or a sort where the quality is not particularly important to then.
-residual markets have been created due to bargaining power. Consumers wouldn’t pay high prices of private market.
How does the bargaining power of suppliers drive competition?
Ex. Availability and pricing of reinsurance after Katrina.
Manufacturers mandating use of OEM parts.
When looking at strengths and weaknesses, which assets are examined?
- managerial experience
- available product lines
- skill levels and competences of staff
- current strategies
- customer loyalty
- growth levels
- organizational structure
- distribution channels
An analysis that identifies patterns in past data and then projects three patterns into the future. A way to analyzing opportunities and threats
Trend analysis
What are the most prevalent types of organizational strategies?
- corporate level
- business level
- functional-level
- operation-level
Strategy level that represents the highest strategy level for a diversified organization and determines the types of businesses and potential profitability for the organization.
corporate-level strategy
Strategy level that is implemented by an operation or a strategic business unit to support the corporate-level strategy, to be competitive, and to respond to changes in the external environment.
Business-level strategy
strategy that is carried out by an organization’s departments, such as marketing or underwriting.
Functional level strategy
strategy that is implemented in a department’s day-to-day business activities.Includes workflows and production processes.
Operational-level strategy
Compare forward and backward integration in a vertical integration strategy.
When a company is pursuing a vertical integration strategy, it either produces its own inputs or
disposes of its own outputs. Backward integration occurs when an organization produces inputs
for processing. Forward integration occurs when an organization sells its product directly to the
customer.
What are the three generic corporate-level strategies that are available for companies in growth mode?
- single business
- vertical integration
- diversification
A corporate-level strategy through which a company either produces its own inputs or disposes of its own outputs.
Vertical integration strategy
