Midterm Review Flashcards
Romantic and external view perspectives
- External Perspective - Believes that external forces determine an organization’s success
- situations in which external forces—where the leader has limited influence—determine the organization’s success
- COVID-19
- situations in which external forces—where the leader has limited influence—determine the organization’s success
- Romantic View - A leader is the key in organization’s success
- romantic view of leadership situations in which the leader is the key force determining the organization’s success— or lack thereof
- Example: Steve Jobs
- romantic view of leadership situations in which the leader is the key force determining the organization’s success— or lack thereof
Key attributes of strategic management
- • Directs the organization toward overall goals and objectives.
- That is, effort must be directed at what is best for the total organization, not just a single functional area.
- • Includes multiple stakeholders in decision making.
- • Needs to incorporate short-term and long-term perspectives.
- • Recognizes trade-offs between efficiency and effectiveness.
- That is, effort must be directed at what is best for the total organization, not just a single functional area.
- Managers will not be successful if they focus on a single stakeholder. For example, if the overwhelming emphasis is on generating profits for the owners, employees may become alienated, customer service may suffer, and the suppliers may resent demands for pricing concessions.
- That is, managers must maintain both a vision for the future of the organization and a focus on its present operating needs
- Some authors have referred to this as the difference between “doing the right thing” (effectiveness) and “doing things right” (efficiency). 23 While managers must allocate and use resources wisely, they must still direct their efforts toward the attainment of overall organizational objectives.
Ambidextrous behavior
the challenge managers
face of both aligning
resources to take
advantage of existing
product markets and
proactively exploring new
opportunities.
MBIDEXTROUS BEHAVIORS: COMBINING
ALIGNMENT AND ADAPTABILITY
A study involving 41 business units in 10 multinational companies identified four ambidextrous behaviors in individuals. Such
behaviors are the essence of ambidexterity, and they illustrate
how a dual capacity for alignment and adaptability can be woven
into the fabric of an organization at the individual level.
They take time and are alert to opportunities beyond the
confines of their own jobs. A large computer company’s sales
manager became aware of a need for a new software module
that nobody currently offered. Instead of selling the customer
something else, he worked up a business case for the new module. With management’s approval, he began working full time on
its development.
They are cooperative and seek out opportunities to combine their efforts with others. A marketing manager for Italy
was responsible for supporting a newly acquired subsidiary.
When frustrated about the limited amount of contact she had
with her peers in other countries, she began discussions with
them. This led to the creation of a European marketing forum
that meets quarterly to discuss issues, share best practices, and
collaborate on marketing plans.
They are brokers, always looking to build internal networks. When visiting the head office in St. Louis, a Canadian
plant manager heard about plans for a $10 million investment
for a new tape manufacturing plant. After inquiring further about
the plans and returning to Canada, he contacted a regional manager in Manitoba, who he knew was looking for ways to build his
business. With some generous support from the Manitoba government, the regional manager bid for, and ultimately won, the
$10 million investment.
They are multitaskers who are comfortable wearing more
than one hat. Although an operations manager for a major coffee
and tea distributor was charged with running his plant as efficiently as possible, he took it upon himself to identify value-added
services for his clients. By developing a dual role, he was able to
manage operations and develop a promising electronic module
that automatically reported impending problems inside a coffee
vending machine. With corporate funding, he found a subcontractor to develop the software, and he then piloted the module in his
own operations. It was so successful that it was eventually
adopted by operations managers in several other countries.
A recent Harvard Business Review article provides some useful insights on how one can become a more ambidextrous
leader. Consider the following questions:
• Do you meet your numbers?
• Do you help others?
• What do you do for your peers? Are you just their
in-house competitor?
• When you manage up, do you bring problems—or
problems with possible solutions?
• Are you transparent? Managers who get a reputation
for spinning events gradually lose the trust of peers and
superiors.
• Are you developing a group of senior managers who
know you and are willing to back your original ideas
with resources?
Henry Mintzberg framework about realized strategy
- Intended Strategy
- Organizational decisions are determined only by analysis.
- Intended strategies rarely survive in the original form
- Realized Strategy
- Decisions are determined by both analysis (deliberate) and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences (emergent).
Stakeholder management
Stakeholder Management - a firm’s strategy for recognizing and responding to the interests of all its salient stakeholders.
Strategic Management - Requires an effective and appropriate corporate structure
Corporate Governance - The relationship among various participants in determining the direction and performance of corporations
Primary Participants are:
- Shareholders
- Management (led by the CEO)
- The Board of Directors (BOD)
Hierarchy of goals
Organizational goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images to, at the bottom, those that are more specific and measurable.
SWOT framework
A framework for analyzing a company’s internal and external environments and that stands for strengths, weaknesses, opportunities, and threats.
The general idea of SWOT analysis is that a firm’s strategy must:
- Build on its strengths.
- Remedy the weaknesses or work around them.
- Take advantage of the opportunities presented by the environment.
- Protect the firm from the threats
Environmental scanning, monitoring, competitive intelligence, and forecasting
- *Environmental scanning** involves surveillance of a firm’s external environment.
- Predicts environmental changes to come.
- Detects changes already under way.
- Allows firm to be proactive.
- *Environmental monitoring** tracks evolution of environmental trends.
- Sequences of measurable facts/events.
- Streams of activities or trends from outside the organization.
- *Competitive intelligence**
- Helps firms define and understand their industry.
- Identifies rivals’ strengths & weaknesses.
- Collect data on competitors.
- Interpret intelligence data.
- Helps firms avoid surprises.
- Anticipate competitors’ moves.
- Decrease response time.
- Potential for unethical behavior while gathering intelligence.
Environmental forecasting the development of plausible projections about the direction, scope, speed, and intensity of environmental change
-Plausible Projections About:
-Direction of environmental change
-Scope of environmental change
-Speed of environmental change
-Intensity of environmental change
-Its purpose is to predict change.
It asks:
How long will it take a new technology to reach the marketplace?
Will the present social concern about an issue result in new legislation?
Are current lifestyle trends likely to continue?
General environment framework
General Environment - factors external to an industry, and usually beyond a firm’s control, that affect a firm’s strategy
The general environment is composed of factors that are both hard to predict and difficult to control. We divide the general environment into six segments:
- *-Demographic.**
- *-Sociocultural.**
- *-Political/Legal.**
- *-Technological.**
- *-Economic.**
- *-Global.**
Examples of each:
Demographic
• Aging population
• Rising affluence
• Changes in ethnic composition
• Geographic distribution of population
• Greater disparities in income levels
Sociocultural
• More women in the workforce
• Increase in temporary workers
• Greater concern for fitness
• Greater concern for environment
• Postponement of family formation
Political/Legal
• Tort reform
• Americans with Disabilities Act (ADA) of 1990
• Deregulation of utility and other industries
• Increases in federally mandated minimum wages
• Taxation at local, state, federal levels
• Legislation on corporate governance reforms in bookkeeping, stock options, etc. (Sarbanes-Oxley Act
of 2002)
• Affordable Care Act (Obamacare)
Technological
• Genetic engineering
• Three-dimensional (3D) printing
• Research in synthetic and exotic materials
• Pollution/global warming
• Miniaturization of computing technologies
• Wireless communications
• Nanotechnology
• Big Data Analytics
Economic
• Interest rates
• Unemployment rates
• Consumer price index
• Trends in GDP
• Changes in stock market valuations
• National debt
Global
• Changes in global trade
• Currency exchange rates
• Emergence of the Indian and Chinese economies
• Trade agreements among regional blocs (e.g., NAFTA, EU, ASEAN)
• Creation of WTO (leading to decreasing tariffs/free trade in services)
• Increased risks associated with terrorism
Porter’s 5 forces
Porter’s five forces model of industry competition - a tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs.
- *1. The threat of new entrants.**
- *2. The bargaining power of buyers.**
- *3. The bargaining power of suppliers.**
- *4. The threat of substitute products and services.**
- *5. The intensity of rivalry among competitors in an industry.**
Complementors
Products or services that have an impact on the value of a firm’s products or services
Example: Video game consoles and their video games
Strategic groups
Two unassailable assumptions in industry analysis:
- No two firms are totally different.
- No two firms are exactly the same.
- *Strategic groups** – clusters of firms that share similar strategies:
- Breadth of product & geographic scope.
- Price/quality.
- Degree of vertical integration.
- Type of distribution.
- *Strategic groups can be analytical tools.**
- Helps identify barriers to mobility that protect a group from attacks by other groups.
- Helps identify groups whose competitive position may be marginal or tenuous.
- Helps chart the future direction of firms’ strategies.
- Helps to think through the implications of each industry trend for the strategic group as a whole.
Value-chain analysis
value-chain analysis a strategic analysis of an organization that uses value-creating activities
Value-chain analysis views the organization as a sequential process of value-creating activities. The approach is useful for understanding the building blocks of competitive advantage and was described in Michael Porter’s seminal book Competitive Advantage. Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price a firm’s product commands and the quantity it can sell. A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. Creating value for buyers that exceeds the costs of production (i.e., margin) is a key concept used in analyzing a firm’s competitive position.
Porter described two different categories of activities.
First, five primary activities— inbound logistics, operations, outbound logistics, marketing and sales, and service—contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale.
Second, support activities—procurement, technology development, human resource management, and general administration—either add value by themselves or add value through important relationships with both primary activities and other support activities. Exhibit 3.1 illustrates Porter’s value chain
To get the most out of value-chain analysis, view the concept in its broadest context, without regard to the boundaries of your own organization. That is, place your organization within a more encompassing value chain that includes your firm’s suppliers, customers, and alliance partners. Thus, in addition to thoroughly understanding how value is created within the organization, be aware of how value is created for other organizations in the overall supply chain or distribution channel.
Resource-based view in general (not on types of resources)
The resource-based view (RBV) of the firm combines two perspectives:
(1) the internal analysis of phenomena within a company and
(2) an external analysis of the industry and its competitive environment.
Resource-based view (RBV) of the firm perspective that firms’ competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute. It goes beyond the traditional SWOT (strengths, weaknesses, opportunities, threats) analysis by integrating internal and external perspectives. The ability of a firm’s resources to confer competitive advantage(s) cannot be determined without taking into consideration the broader competitive context. A firm’s resources must be evaluated in terms of how valuable, rare, and hard they are for competitors to duplicate. Otherwise, the firm attains only competitive parity.
VRI(U)O framework
Resources that can provide a firm with the potential for a sustainable competitive advantage have four attributes.
- *Valuable** in formulating and implementing strategies to improve efficiency or effectiveness. The resources helps to neutralize threats and exploit opportunities
- *Rare or uncommon;** difficult to exploit. Not many firms possess the resource
- *Difficult to imitate** or copy due to physical uniqueness, path dependency, causal ambiguity, or social complexity.
- *Difficult to substitute** with strategically equivalent resources or capabilities.
General understanding of balance scorecard and Financial ratio analysis.
financial ratio analysis a method of evaluating a company’s performance and financial well-being through ratios of accounting values, including short-term solvency, long-term solvency, asset utilization, profitability, and market value ratios.
•Balanced Scorecard Analysis - generally speaking, identifies how a firm is performing according to its balance sheet, income statement, and market valuation. As we will discuss, when performing a financial ratio analysis, you must take into account the firm’s performance from a historical perspective (not just at one point in time) as well as how it compares with both industry norms and key competitors.
Employees.
Owners.
Customer satisfaction.
Internal processes.
Innovation, learning and improvement activities.
Financial perspectives.
•Financial Ratio Analysis - The second perspective takes a broader stakeholder view. Firms must satisfy a broad range of stakeholders, including employees, customers, and owners, to ensure their long-term viability. Central to our discussion will be a well-known approach—the balanced scorecard—that has been popularized by Robert Kaplan and David Norton.
Balance sheet.
Income statement.
Market valuation.
Historical comparison.
Comparison with industry norms.
Comparison with key competitors.
Intellectual capital
Intellectual capital is a measure of the value of a firm’s intangible assets. It is the difference between a firm’s market value and book value.
Intellectual capital = Market value of the firm – Book value of the firm
Book Value = Assets - Liabilities
Market Value = Market Cap[Share Price * # of Shares]
- *It includes these assets:**
- *Reputation.**
- *Employee loyalty and commitment.**
- *Customer relationships.**
- *Company values.**
- *Brand names**
- *Experience and skills of employees.**
Human capital
human capital the individual capabilities, knowledge, skills, and experience of a company’s employees and managers.
Social capital
social capital the network of friendships and working relationships between talented people both inside and outside the organization.
Tacit and explicit knowledge
explicit knowledge - knowledge that is codified, documented, easily reproduced, and widely distributed.
tacit knowledge - knowledge that is in the minds of employees and is based on their experiences and backgrounds.
The role of technology to enhance intellectual capital
Social networking has made it easier to manage relationships with customers.
Help make Brand Names more recognizable, display brand values. Build a relationship with communities outside of a product’s typical storefront setting.
Intellectual property
Intellectual property rights are more difficult to define and protect than property rights for physical assets.
Intellectual property can be easily stolen.
If intellectual property rights are not reliably protected by the state, there will be no incentive to develop new products and services.
Intellectual property has significant development costs but very low marginal costs.
Effective protection is necessary before any investor will provide financing.
5 Generic Business level strategies (Especially low-cost leadership and differentiation)
- *Overall cost leadership is based on:**
- Creating the lowest-cost position relative to a firm’s peers.
- Managing relationships throughout the entire value chain to lower costs.
- Aggressive construction of efficient scale facilities.
- Vigorous pursuit of cost reductions from experience.
- Tight cost and overhead control.
- Avoidance of marginal customer accounts.
- Cost minimization in all activities in the firm’s value chain, such as research and development, service, sales force, and advertising.
-•requires learning to lower costs through experience: the experience curve.
- *Differentiation implies:**
- Products and/or services that are unique and valued.
- Emphasis on nonprice attributes for which customers will gladly pay a premium.
- *A differentiation strategy can take many forms:**
- *Prestige or brand image.**
- *Quality.**
- *Technology.**
- *Innovation.**
- *Features.**
- *Customer service.**
- *Business Model.**
- *Dealer network.**
Differentiation Requires:
- A level of cost parity relative to competitors.
- Integration of multiple points along the value chain.
- Superior material handling operations to minimize damage.
- Low defect rates to improve quality.
- Accurate and responsive order processing.
- Personal relationships with key customers.
- Rapid response to customer service requests.
- Differentiation along several different dimensions at once.
•A differentiation strategy:
Creates higher entry barriers due to customer loyalty
Provides higher margins that enable the firm to deal with supplier power
Reduces supplier power due to prestige associated with supplying to highly differentiated products
Reduces buyer power because buyers lack suitable alternative
Establishes customer loyalty and hence less threat from substitutes
Because of customer loyalty, the firm is protected from rivalry
Pitfalls of Differentiation
Uniqueness that is not valuable.
Too much differentiation.
Too high a price premium.
Differentiation that is easily imitated.
Dilution of brand identification through product line extensions.
Perceptions of differentiation may vary between buyers and sellers.
- *A focus strategy requires:**
- Narrow product lines, buyer segments, or targeted geographic markets.
- Advantages obtained either through differentiation or cost leadership.
•A focus strategy is based on the choice of a narrow competitive scope within an industry.
–A firm selects a segment or group of segments (or niche) and tailors its strategy to serve them.
–A firm achieves competitive advantages by dedicating itself to these segments exclusively.
•A focus strategy has two variants.
1.Cost focus.
- Creates a cost advantage in its target segment.
- Exploits differences in cost behavior.
2.Differentiation focus.
- Differentiates itself in its target market.
- Exploits the special needs of buyers.
- Typically the most expensive products in each category
**Combination Strategies are successful
**Those without a plan are less successful
Industry life cycle
The industry life cycle:
Introduction.
Growth.
Maturity.
Decline.
Generic strategies, functional areas, value-creating activities, and overall objectives all vary over the course of an industry life cycle.
The introduction stage is when:
Products are unfamiliar to consumers.
Market segments are not well-defined.
Product features are not clearly specified.
Competition tends to be limited.
Main Goals/Strategies:
Develop a product and get users to try it.
Generate exposure so the product becomes “standard.”
The growth stage is:
Characterized by strong increases in sales.
The market is growing
Attractive to potential competitors.
Primary key to success is to build consumer preferences for specific brands
Main Goals/Strategies:
Create branded differentiated products.
Stimulate selective demand.
Provide financial resources to support value-chain activities.
The maturity stage is when:
Aggregate industry demand slows.
Market becomes saturated, few new adopters.
Direct competition becomes predominant.
Marginal competitors begin to exit.
Industry consolidation occurs
Main Goals/Strategies:
Create efficient manufacturing operations.
Lower costs as customers become price-sensitive.
Extend the product life cycle: adopt reverse or breakaway positioning.
The decline stage is when:
Industry sales and profits begin to fall.
The industry is dying
Main Goals/Strategies:
Maintaining the product position.
Harvesting profits and reducing costs and investments.
Exiting the market.
Consolidating or acquiring surviving firms.
