Strategic Management Flashcards
Pass the exam
What is a
strategy?
A coordinated set of actions
to outperform competitors
and achieve profitability
Strategy is
about (pacacr)
How to position the firm in the market place,
how to attract customers, how to compete
against rivals, how to achieve firms’
performance targets, how to capitalize on
opportunities to grow the business
Strategy is successful when its
actions, businesses approaches,
and competitive moves appeal to
buyers in ways that:
Set it apart from its rivals by either providing
products with higher perceived values or
efficiently producing at lower costs. Stake
out (find) a market position that is not
crowded with strong competitors
Competitive
advantage
Requires meeting customer
needs either more effectively
or more efficiently
Sustainable
competitive
advantage requires
Giving buyers lasting reasons to prefer a firm’s
products or services over those of its
competitors.
.Developing expertise and long-term competitive
capabilities that cannot be readily overcome
.Putting the constant quest for sustainable
competitive advantage at center stage in crafting
your strategy
Name 5 basic
strategic approaches
Low-cost provider strategy .Broad differentiation strategy .Focused low-cost strategy .Focused differentiation strategy .Best-cost provider strategy
Low-cost
provider strategy
Achieving a
cost-based
advantage over rivals
Broad Differentiation
strategy
differentiating the firm’s
product or service from rivals
in ways that appeal to broad
spectrum of buyers
A focused
low-cost strategy
Concentrating on a narrow
buyer segment by having
lower costs to serve niche
members at a lower price
Focused
differentiation
strategy
concentrating on a narrow buyer segment by offering buyers customized attributes that meet their specialized needs better than rivals'products
Best-cost
provider strategy
giving customers more perceived
value for their money by
satisfying their expectations on
key quality futures
Managers modify
strategy in response
to (CAFSEN)
Changing market conditions, advancing technology, fresh moves of competitors, shifting buyer needs, emerging market opportunities, new ideas for improving the strategy
Proactive
strategy elements
Include planned initiatives to
improve the company’s
financial performance and
secure a competitive edge
Reactive strategy
elements
Developed on the fly in
response to unanticipated
developments and fresh
market conditions
Superseded
strategy
Elements that no longer
fit with the company’s
ongoing strategy
How the firm will
make money
By providing customers with value
By generating revenues sufficient to
cover costs and produce attractive
profits
Customer value
proposition
Satisfying buyer wants and
needs at a price customers
will consider a good value
Profit formula
Creates a cost structure that
allows for acceptable profits,
given that pricing is tied to the
customer value proposition
The lower the costs
for a given customer
value, the greater
the ability of the
business model to be
a moneymaker
A winning strategy
must pass three tests
The fit test, the
competitive advantage
test, the performance test
The fit test
Does it exhibit good fit with
the external and internal
aspects of the firm’s dynamic
situation
5 steps in the strategy
- Developing a strategic vision
- Setting objectives for measuring the firm’s performance and tracking its progress
- Crafting a strategy to move the firm along its strategic course and achieve its objectives
- Executing the chosen strategy efficiently and effectively
- Monitoring developments, evaluating performance and initiating corrective adjustments
Developing a strategic vision
Provides direction
Sets out the compelling rationale
Uses distinctive and specific language to set the firm apart from its rivals
Why communicate the vision?
Fosters employee commitment to the firm’s chosen strategic direction
Ensures understanding of its importance
Motivates, informs and inspires internal and external stakeholders
What needs to be done for strategic vision (PHCE)
Put the vision in writing and distribute it
Hold meetings to personally explain the vision and its rationale
Create a memorable slogan or phrase that effectively expresses the essence of the vision
Emphasize the positive
Why a sound, well-communicated strategic vision matters?
It crystallizes senior executives’ own views about the firm’s long-term direction.
It reduces the risk of rudderless decision making.
It is a tool for winning the support of organization members to help make the vision a reality.
It provides a beacon for lower-level managers in setting departmental objectives and crafting departmental strategies that are in sync with the firm’s overall strategy.
It helps an organization prepare for the future.
A good mission statement
Uses specific language to give the firm its unique identity
Describe the firm’s current business and purpose
Focuses on describing the firm’s business, not on making the profit.
An ideal mission statement
Identifies the company’s product or services
Specifies the buyer needs it seeks to satisfy
Identifies the customer groups or markets it is endeavoring to serve
Gives the company its own identity that sets the company firm apart from its rivals
Clarifies the firm’s purpose and business makeup to stakeholders
Core Values
Are the beliefs, traits, and behavioral norms that employees are expected to display in conducting the firm’s business and in pursuing its strategic vision and mission.
Become an integral part of the firm’s culture and what makes it tick when strongly espoused and supported by top management.
Match the firm’s vision, mission, and strategy, contributing to the firm’s business success.
Purpose of setting objectives
To convert the vision and mission into specific, measurable, challenging yet achievable, deadline performance targets
To focus efforts and align actions throughout the organization
To serve as yardsticks for tracking a firm’s performance and progress
To provide motivation and inspire employees to greater levels of effort
Stretch objectives promotes better overall performance because stretch targets
Push a firm to be more inventive.
Increase the urgency for improving financial performance and competitive position.
Cause the firm to be more intentional and focused in its actions.
Create an exciting work environment and attract the best people.
Help prevent internal inertia and contentment with modest gains in performance.
Realistic stretch goals
Are definitely reachable, with a strong and coordinated effort on the part of company personnel
Overly ambitious stretch goals
Are usually beyond the organization’s capabilities to reach, regardless of the level of effort.
Involve radical expectations and often go unachieved, and run the risk of killing motivation, eroding employee confidence, and damaging both worker and company performance.
Can work as envisioned if:
the company has ample resources and capabilities.
its recent performance is strong.
A balanced scorecard strives to place:
Balanced emphasis on achieving both financial and strategic objectives by tracking measures of both financial performance and the competitiveness of its market position.
The four dimensions of a Balanced Scorecard
Financial objectives
Strategic objectives that signal greater competitive strength (and thus greater capability to achieve higher levels of financial performance)
Internal process objectives relating to productivity and quality
Organizational objectives concerning human capital, culture, infrastructure, and innovation
Setting Objectives for Every Organizational Level
Breaks down overall performance targets into targets for each of the organization’s separate units
Fosters setting lower-level performance targets or outcomes that support achievement of firm-wide strategic and financial objectives
Extends the top-down objective-setting process to all organizational levels
Strategy making:
Addresses a series of strategic hows.
Requires choosing among strategic alternatives.
Promotes actions to do things differently from competitors rather than running with the herd.
Is a collaborative team effort that involves managers in various positions at all organizational levels.
Corporate strategy
Multi-business strategy—how to gain synergies from managing a portfolio of businesses together rather than as separate businesses
Business strategy
How to strengthen market position and gain competitive advantage
Actions to build competitive capabilities of single businesses
Monitoring and aligning lower-level strategies
Functional area strategies
Add relevant detail to the “hows” of business strategy.
Provide a game plan for managing a particular activity in ways that support the business strategy.
Operational strategies
Add detail and completeness to business and functional strategies.
Provide a game plan for managing specific operating activities with strategic significance.
Converting strategic plans into actions requires:
Directing organizational action
Motivating people
Building and strengthening the firm’s competencies and competitive capabilities
Creating and nurturing a strategy-supportive work climate
Meeting or beating performance targets
Evaluating performance
Deciding whether the enterprise is passing the three tests of a winning strategy—good fit, competitive advantage, strong performance
Initiating corrective adjustment
Deciding whether to continue or change the firm’s vision and mission, objectives, strategy, and strategy execution methods
Applying lessons based on organizational learning.
Obligations of the board of directors:
Oversee the firm’s financial accounting and reporting practices compliance with GAAP principles.
Critically appraise the firm’s direction, strategy, and business approaches.
Evaluate the caliber of senior executives’ strategic leadership skills.
Institute a compensation plan that rewards top executives for actions and results that serve stakeholder interests—especially shareholders.
A strong, independent board of directors:
Is well informed about the firm’s performance.
Guides and judges the CEO and other executives.
Can curb management actions the board believes are inappropriate or unduly risky.
Can certify to shareholders that the CEO is doing what the board expects.
Provides insight and advice to top management.
Is intensely involved in debating the pros and cons of key strategic decisions and actions.
