Lesson 1 Flashcards
explain the differences among Porter’s generic competitive strategies
Michael Porter defined 3 generic competitive strategies as a way to outperform competition and to defend territory.
• Product differentiation strategy -
• Cost leadership strategy
• Focus strategy
Low–cost strategy
Is the same as a cost-leadership strategy. Firms seek to reduce costs through economies of scale, cost control and operational efficiencies.
Differentiation strategy
firms seek to create a unique product or service offering through innovation, customer service, and marketing. Starbucks and eBay are examples.
describe the strategic planning process
- Mission and objectives – outlining what the company wants to achieve and their overall vision
- Environmental scanning – assesses their internal and external environments using tools such as value chain analysis, STEEP (social, tech, econ, environ, and political factors) analysis and five forces analysis
- Strategy formulation – defines their strategy bases on their mission and the environment
- Strategy implementation – outlines the specific steps needed to achieve the desired strategy, setting specific objectives
- Evaluation and control- measures how successful a company has been in achieving its strategy.
Explain how short-term measures evaluate the success of long-term strategies
Short-term measures evaluate the success of long-term strategies by showing a current picture of how the strategy evolves year over year so that a picture of the long-term strategy is developed. The BSC shows many current measures of performance.
identify the four perspectives of the balanced scorecard (BSC) and describe how they relate to each other and to corporate strategy.
Financial perspective
o Highlights achievement of financially strategic goals
o Measures include operating and net profit margins, % increase in operating cash flow, return on capital employed, return on equity or return on assets and % increase in share price
Customer perspective
o Identifies target market segments and uses them to measure the company’s success
o Measures are market share, % growth in revenue, new segments reached, # new customers, and customer satisfaction
o Success depends on how well they do relative to competition.
Internal business process perspective
o Analyzes how to improve internal operations such as the entire value chain of business functions
o Measures are variance analysis, short and long term capacity management measures, public and private databases to understand their competitive stature and changes in competitive environment
Learning and growth perspective
o Identifies, develops, retains and values intellectual capital such as human, structural and relational capital.
o Human capital – skill, expertise and innovativeness of ee’s
Measured by # suggestions for improvements or new products
o Structural capital – includes patents, databases, internal routines and MIS
Measured by retention of satisfied employees, reduced turnover, increased internal promotions, fulfillment of external certifications
o Relational capital – experience in business relationships with both clients and suppliers
ERM – Enterprise risk management – 8 elements
o Internal ID and communication of risk appetite, integrity and risk management philosophy
o Formal objective setting process to align objectives with the mission and risk appetite
o Id of chain event triggers that should alert mgrs to new internal and external threats and opportunities
o Risk assessment arising from formal analysis of likelihood and planned response
o Risk response analysis to avoid, reduce, share or accept risk aligned with risk appetite
o Control activities comprising policies and procedures that monitor the effective implementation of risk responses.
o Information capture and communication to ensure those accountable receive relevant and timely information
o Monitoring processes and feedback of actual risk management practices
Corporate governance vs Corporate competitiveness
o Measures of corporate competitiveness include:
Productivity
cost leadership
business risk management
financial risk management
business process success in marketing
capacity utilization
measures of value creation
o good corporate governance is a matter of implementing these practices as a whole, not piecemeal.
o Changes in the level of good corporate governance explain changes in good corporate competitiveness. As a company improves on one measure, it will have a measurable effect on improving the other 2 measures. (The 3 measures are Customer management, Intellectual capital management and Financial performance).
describe the concept of a triple bottom line.
- A scorecard that illustrates all aspects of commitments and achievements in economic, environmental and social domains.
- The standard financial statements are augmented with specific environmental and social sustainability reports.
describe the Dow Jones Sustainability Index (DJSI)
- stock indexes which include companies based on a specific set of sustainability related criteria.
- DJSI measures vary from industry to industry but still contain measures to assess corporate stability of the economic, environmental and social dimensions.
describe the features of a “good” BSC and identify the challenges of implementing a BSC.
• tells the story of a company’s strategy by articulating a limited sequence of critical or cause and effect relationships.
• Helps to communicate the strategy to all members of the org by translating the strategy into a coherent and linked set of understandable and measurable operational targets.
• In for-profit companies, the BSC places strong emphasis on financial objectives and measures
• It limits the # of measures used by identifying only the most critical ones
• It highlights suboptimal tradeoffs that managers may make when they fail to consider operational and financial measures together
• Challenges are:
i) Ensuring the strategy does not comprise sets of hypotheses about cause and effect links
ii) Scare corporate resoureces mean tradeoffs or priority setting must occur among various strategic goals
iii) BSC includes the intangible achievement of good management of intellectual capital.
iv) Intangible costs are extremely difficult toestimate but intangible benefits even more so.
v) Managers tend to focus on what their performance is measured by
analyze specific productivity and capacity control strategies for achieving BSC expectations.
• partial productivity = qty output produced/qty of input used
• total factor productivity = qty output produced/costs of all input used
• benchmark TFP (same as above, except with benchmarks)
• engineered costs
i) differ from discretionary costs in the type of process and the level of uncertainty
• discretionary costs
i) they arise from periodic decisions regarding the maximum amount to be incurred
ii) they have no clearly measurable cause and effect relationship between output and resources used
• infrastructure costs (fixed costs such as amortization, long-run lease rental, long-run technical capabilities
explain the importance of using the BSC in terms of measuring intangible resources within an organization
• it shows that other questions are also important such as:
i) how innovative are we?
ii) How knowledgeable is our workforce
iii) Do we have a good reputation in our marketplace?
iv) Are our employees happy?
v) Have we improved our quality?
