Chapter 1 Flashcards
Mission
The mission is articulated in a broadly defined but enduring statement of purpose that identifies the scope of an organization’s operations and its offerings to affected groups and entities.
Strategy
Strategy refers to top management’s plans to develop and sustain competitive advantage so that the company’s mission is fulfilled
Competitive Advantage
Competitive advantage is a state whereby a
firm’s successful strategies cannot be easily
duplicated by its competitors. Maintaining a
sustained competitive advantage over time
can be challenging.
Difference between strategy and strategic management process
The difference between a strategy and the strategic management process is that the latter includes considering what must be done before a strategy is formulated through assessing whether or not the success of an implemented strategy was successful.
Strategic Management
Strategic Management is a broader term than strategy and is a process that includes top management’s analysis of the environment in which the organization operates prior to formulating a strategy, as well as the plan for implementation and control of the strategy.
The strategic management process
- External Analysis: Analyze the opportunities and threats, or constraints, that exist in the organization’s external environment, including industry and forces in the external environment.
- Internal Analysis: Analyze the organization’s strengths and weaknesses in its internal environment. Consider the context of managerial ethics and corporate social responsibility.
- Strategy Formulation: Formulate strategies that build and sustain competitive advantage by matching the organization’s strengths and weaknesses with the environment’s opportunities and threats.
- Strategy Execution: Implement the strategies that have been developed.
- Strategic Control: Measure success and make corrections when the strategies are not
producing the desired outcomes.
Business model
The mechanism whereby the organization seeks to earn a profit by selling its goods or services.
Progressive firms business models
Progressive firms often devise innovative
business models that extract revenue—and
ultimately profits—from sources not
identified by competitors.
5 Factors associated with a successful business strategy
- Understand the competitive
environment. - Understand how resources translate into
strengths and weaknesses. - The strategy is consistent with the
mission and goals of the organization. - Plans for putting the strategy into action
are designed before it is implemented. - Possible future changes (i.e., strategic
control) are evaluated before the
strategy is adopted.
Intended Strategy vs Realized Strategy
Intended Strategy—what management originally plans. Realized Strategy— what management actually implements. Intended & realized strategies typically differ because of unforeseen events, better information that was not available when the strategy was formulated, and/or an improvement in top management’s ability to assess its environment.
Strategy as an art
The lack of environmental predictability and the fast pace of change render elaborate strategy planning as suspect at best. Strategic managers should emphasize creativity and innovation. Strategies should be developed like a potter molds clay
Strategy as a science
The scientific approach is the most widely
recognized view of strategy.
Strategic managers are encouraged to
systematically assess the firm’s external
environment and evaluate the pros and cons of
myriad alternatives before formulating strategy.
The scientific approach is more prominent in
this text.
Industrial Organization
A branch of microeconomics, emphasizes the influence of the industry environment on the firm.
Primary influence: structure of industry
Application to case analysis: industry analysis portion of the external environment
Resource Based Theory
Views performance primarily as a function of a firm’s ability to utilize its resources and emphasize the development of a distinctive competence.
Primary influence: firms unique combo of strategic resources
Application to case analysis: analysis of internal strengths and weaknesses
Contingency Theory
Represents a middle ground perspective that views organizational performance as the joint outcome of
environmental forces and the firm’s strategic
actions.
Primary influence: fit between firm and its external environment
Application to case analysis: SWOT analysis and SW/OT matrix
Distinctive competence
Unique resources, skills, and capabilities that enable a firm to distinguish itself from its competitors and create competitive advantage.
Corporate Governance
the board of directors, institutional investors (e.g., pension and retirement funds, mutual funds, banks,
insurance companies, among other money
managers), and large shareholders known as
blockholders who monitor firm strategies to
ensure effective management.
Insiders vs outsiders
Insiders bring company-specific knowledge to the board whereas outsiders bring independence and an external perspective. Over the past several decades, the composition of the typical board has shifted from one controlled by insiders to one controlled by outsiders.
Boards of directors
Boards consist of officials elected by shareholders who are responsible for monitoring activities in the organization. Boards are responsible for: 1. Evaluating top management’s strategic proposals. 2. Establishing broad direction for the firm 3. Selecting and determining the compensation for the chief executive
CEO Duality
when the CEO also serves as the chairman of the board—represents a potential conflict of interest
Sarbanes-Oxley Act (2002)
Requires firms to include more independent directors on their boards and make disclosures on internal controls, ethics codes, and the composition of their audit committees on annual reports. Covers public firms in the United States Requires that both the CEO and the CFO certify every report that contains company financial statements Restricts membership of the firm’s audit committee to outsiders Prohibits firms from extending personal loans to board members or executives
Board of Directors
Responsible for monitoring activities in the organization, evaluating top management’s strategic proposals, and establishing the broad strategic direction for the firm.
Research indicates, for instance, that board members are often invaluable sources of environmental and competitive information
Evidence suggests that many boards are
becoming more responsive and assertive
in their responsibilities.
Cons of insiders controlling the board
When insiders control a board, a rubber stamp mentality can develop, whereby directors do not aggressively challenge executive decisions as they should.
4 characteristics of strategic decisions
- Based on a systematic, comprehensive
analysis of internal and external factors. - Long-term and future-oriented—usually
several years to a decade or longer. - Seek to capitalize on favorable situations
outside the organization. - Involve choices and trade-offs.
Strategic decisions only from top management?
Strategic decisions do not necessarily start with top management action, however, but instead can bubble up from a series of lower level decisions throughout the firm.
Comparative Advantage
The idea that certain products may be produced more cheaply or at a higher quality in particular countries due to advantages in labor costs or technology.
The notion of comparative advantage is fluent, as nations enjoying a form of comparative advantage at one period may not enjoy it in a future period.
Who is responsible for strategy formulation?
Strategy formulation is the direct responsibility of the CEO, but he or she relies on a team of other individuals as well, including the board of directors, vice presidents, and other various managers.
