Chapter 1 Flashcards
What is strategy?
Actions that managers take to increase their company’s performance and attain goals
What is the ultimate challenge of strategy?
Achieve performance relative to company’s rivals
How can managers pursue to achieve superior performance and provide a competitive advantage?
Describe what superior performance and competitive advantage mean and explain the pivotal role that managers play in the strategic process
What is the result of company’s strategy?
Have a competitive advantage
What is strategic leadership?
Effectively managing a company’s strategy making process to create a competitive advantage
What is strategy formulation?
selecting strategies
What is strategy implementation?
Putting strategies into action of design, delivering and supporting products, improving efficiency and effectiveness, designing a company’s organizational structure, control systems and operations
Who are shareholders?
People who own the company
What is risk capital?
Equity capital invested with no guarantee that stockholders will recoup their cash or return a decent return
What do the managers goal?
Increase profitability and ensure profits grow
Why is maximizing shareholder value the ultimate goal?
- Shareholders provide a company with the risk capital that management use to buy things for the company
- Shareholders are legal owners and they have the right to claim profits
What is shareholder value?
Returns of shareholders earn from purchasing shares in a company
When will shareholders provide risk capital
When they believe that managers are committed to pursuing strategies that provide good return on capital investment
What is the two sources of shareholder value?
Capital appreciation and dividend payments
What is profitability?
The return a company makes on the capital invested in the enterprise which is measured by efficiency and effectiveness
What are the types of risk takers
Risk averse, risk neutral, risk takers
What is return on invested capital
Net profit/capital invested
What are the principal drivers of shareholder value?
Profitability and profit growth
What is profitable growth?
High profitability and sustainable profit growth
What is competition?
Companies have similar products/services/pricing as you
When does a company have competitive advantage?
When its profitability and profit growth is greater than the average of other companies competing for the same set of customers
What is a sustained competitive advantage?
Strategies enable it to maintain above average profitability and profit growth for a number of years
What is profit growth?
Increase in net profit overtime
What is a business model?
Concept of how strategies should work together as a whole to enable the company to achieve competitive advantage
What does the business model encompass?
- Select its customers
- Define and differentiate its product offerings
- Create value for its customers
- Acquire and keep customers
- Product goods or services
- Increase productivity and lower costs
- Deliver goods and services in the market
- Organize activities within a company
- Configure its resources
- Achieve and sustain a high level of profitability
- Grow the business over time
What are the characteristics of the industry by different competitive conditions?
Demand, excess capacity, price wars, technological, profitability, new entry, profit growth
How do non profit enterprises perform?
They are expected to use their resources efficiently and operate effectively and their managers set goals to measure their performance
What are non profit agencies?
businesses not about making profits
What were the first corporations based towards?
Military strategy
What are the two types of managers?
Functional and general managers
What are general managers?
Managers who bear the responsibility for the overall performance of the company
What are functional managers?
Managers responsible for supervising a function, a task, activity or operation
What are multidivisional companies?
Competes in several businesses and has created a separate, self contained division to manage each
What are corporate managers?
Consists of CEO, Senior executives and corporate staff
What are the Roels of corporate level managers
- CEO = general managers
- Defining goals of the organizing, determine what businesses it should be in, allocating resources, formulating, implementing and leading
What is the five main steps of strategic planning process?
- Select corporate mission and corporate goals
- Analyze the organizations external competitive environment to identify opportunities & threats
- Analyze the organization’s internal operating environment to identify strengths and weaknesses
- SWOT analysis and ensure these strategies should be consistent with the mission and should constitute to the business model
- Implement strategies
How does one constitute strategy formulation
Putting strategies into actions through allocating roles and responsibilities, setting short term objectives and designing the organizations control and reward systems
What is a mission statement?
First step of strategic management process which provides the framework within the strategies
What is the main components of a mission statement?
- Statement of what the organization does (Mission)
- Statement of some desired future state (VISION)
- Key values
- Major goals
What is product oriented?
Focuses on the products sold and the market served
What is customer oriented
Understanding and satisfying customer needs
What is a SWOT analysis?
- Identifying strategies to exploit external opportunities, counter threats, build on and protect company strengths and help weaknesses
- Goal: Create, affirm and fine tune the companies model that best align their resources and capabilities to the demands of the environment
How can the strategies of the SWOT analysis can be divided
- Functional level strategies: improving efficiency and effectiveness of operations
- Business level strategies: Encompass business’ overall competitive theme to gain competitive advantage
- Global strategies: Expands operations in a global level
- Corporate level strategies: Looking at how companies can maximize the long run profitability and profit growth of the organization
What is a business unit?
Self contained division in its own function
What are business level managers?
- Business level = general managers; head of the division
- Strategic role = create general statements of direction and intent
- Corporate level = concerns with strategies that span individual businesses, business
What are functional level managers?
- Responsible for specific business functions or operations
- Confined to one organization al activity
- Not responsible for the performance
- Create functional strategies in their areas to help fulfill the objectives set by business and corporate level GM’s
What are external analysis
Identify opportunities and threats within the organization
What are the three environments to examine when looking at external analysis
- Industry environment of where the company operates
- Country or national environment
- Wider socioeconomic or macroenvironment
What are internal analysis?
Looking at the resources, capabilities and competencies of a company to identify strengths and weaknesses
What is strategy implementation?
Taking action at the functional, business and corporate levels to execute a strategic plan
What is feedback loop?
Monitoring the execution to determine the extent to which strategic goals and objectives are being achieved and to what degree the competitive advantage is being created or sustained
Why do scholars criticize the formal planning model?
- Unpredictable world
- The role that lower level managers can play in the strategic management process
- The fact that many successful strategies are often the result of serendipity, not rational strategizing
How to strategize in an unpredictable world?
Looking at ways to respond quickly to changing circumstances
What are emergent strategies?
- Created by Henry Mintzberg, where planned strategies are not implemented because of unpredicted environment
- Rise from autonomous action, serendipitous discoveries or events or from unplanned strategic shift by top level managers
What do most organizations use
Intended and emergent strategies
What is intended strategies
Thinking strategically and planning
How can managers use scenario planning techniques?
Looking at the what ifs of the future
What do scenario planning involve?
Looking at the pessimistic and optimistic scenarios of a the plan
What are the steps to scenario planning
- Identify different possible futures
- Formulate the plans to deal with those futures
- Invest
- Hedge bests by preparing scenarios
- Switch strategy if tracking of signposts shows alternative scenarios becoming more likely
What are decentralized planning?
- When corporate level planners should be facilitators who help business
- Functional managers do the planning by setting broad strategic goals of the organization and providing resources necessary to identify the strategies
Why does ivory tower no longer work?
This creates tensions between corporate and functional level managers
What are the different types of biases that make make poor strategic decisions?
- Confirmation bias
- Cognitive Biases (escalating commitment)
- Reasoning by analogy
- Representativeness
- Illusion of control
- Availability error
- Hypothesis Bias
What is escalating commitment bias?
Cognitive bias that occurs when decision makers having already committed significant resources to a project commit even more resources after receiving feedback that the project is failing
What is reasoning by analogy bias?
Use of simple analogies to make sense out of complex problems
What is representative bias?
Bias rooted in the tendency to generalize from a small sample or even a single, vivid anecdote
What is illuision of control bias?
Cognitive bias rooted in the tendency to overestimate ones ability to control events
What is availability error bias?
Bias that arises from the predisposition to estimate the probability of an outcome is to imagine
What is devils advocacy?
Technique where one member of the team identifies all the considerations that might make a proposal unacceptable
What is dialectic inquiry?
Generation of a plan and a counter plan that reflect plausible but conflicting resources
What is an outside view
Identifies of past successful or failed strategic initiatives to determine whether those initiatives will work for a project at hand
What is strategic leadership?
Managers using knowledge, energy and enthusiasm
What are the key characteristics to lead high performance?
- Vision
- Eloquence and consistency
- Articulation of a business model
- Commitment
- Being well informed
- Willingness to delegate and empower
- Astute use of power
- Emotional intelligence
What differentiates companies (distinctive competencies)?
Resources and capabilities
What do distinctive competencies shape?
Strategies
What is IQRE of competitive advantage?
- I → Innovation
- Q → Quality
- R → Response
- E → Efficiency
