Strategic Management

Question 1

Define Strategy

Answer 1

• Constant search for ways in which the firm’s unique resources can be deployed in changing circumstances (Rumelt 1984)
• Choosing a unique and valuable position rooted in systems of activities that are much more difficult to match (Porter 1996)
• Basic long term goals of an enterprise and the adoption of courses of action and the allocation of resources necessary for achieving these goals (Chandler, 1962)
• Strategy is the creation of a unique and valuable position involving a different set of activities that are different from rivals
• Strategy is a number of links and components that when put together to create the best “fit” that leads to companies being able to create an advantage that cannot be recreated by imitators
• Effective strategy formulation involved four key elements: company strengths and weaknesses, industry economic and technical opportunities an threats, the personal values of key implementers, and lastly the broader societal expectations

Question 2

 How would you define strategy as a scholarly field?

Answer 2

• To understand the business concepts that effect firm performance by identifying the firm’s best practices and sources of sustained competitive advantages that contribute to the success of the organization in their external environments.
• Strategic management is a brokering field that enables researchers to pursue multiple research opportunities by members of different disciplines.

Question 3

o 5 branches of organizational economic

Answer 3

 TCE, RBV, Property Rights, Positive Agency Theory, Evolutionary Economic

Question 4

o SM and benefits to organization Why is it important that organizations incorporate strategic management into their business model, cultural, and production processes? )

Answer 4

 The business policy was viewed as a course and not a field of study by certain scholars (Schendel & Hatten, 1972). Research in business policy had primarily been a series of inductive generalizations of case studies, theories have been ambiguous and untested, and have not progressed swiftly (Camerer, 1985). At the time, the views of Business Policy had their origins in the Harvard Business School. In the late fifties, the study by Gordon and Howell (1959) of American business education endorsed the importance Harvard and some others placed on Business Policy (Schendel & Hatten, 1972). However, scholars believed that a broader view of Business Policy was needed (Schendel & Hatten, 1972). In 1979, Schendel and Hofer changed the name of the field from business policy to strategic management. Strategic management is an interesting academic discipline for several reasons and has a significant influence on how managers and organizations conduct daily operations and seek to create sustainable competitive advantages. Strategic management is an academic field that has been linked to economics, sociology, marketing, finance, and psychology. However, the new view had its own challenges. The main challenge of the field was determining exactly what it is? The questions of what does it mean to be doing research in strategic management? What does it take to be seen as a strategic management scholar? These questions have also remained unanswered for a majority of the developmental stages of the field. Another challenge is that researchers focused on everything but addressing the basic question of what strategic management really is. Researchers focused on the field’s emphasis as it related to the firm (Hoskisson et al. 1999), Summer et al., (1990) focused on the historical progression and status of doctoral education in the field; and Ramos-Rodriguez and Navarro (2004) used citation analysis to chart the intellectual progression of the field. The field of strategic management intersects with several other well-developed fields and is highly contestable and ambiguous (Hambrink, 1990; Spender, 2001). This leaves the field open to intellectual and practical attack (Nag, Hambrick & Chen, 2007). Strategic management at its early development stages was a field that had no clear direction and has not been clearly defined, which was another challenge. The field had a variety of definitions that addressed or referred to general managers, the firm/organizations as the general unit of analysis, the importance of organizational performance or success, the external environment, internal resources (Bracker, 1980), and strategy implementation. To address these and other challenges Nag, Hambrick, Chen (2007), conducted two studies. The first gathered scholars together to try to distinguish what strategic management research is through the analysis of abstracts, which lead to the use of automated text analysis to identify the distinctive lexicon of the field. From this, the authors were able to derive the implicit consensual definition of strategic management. The second built off of the first and involved surveying boundary-spanners who are scholars who work in both strategic management and another field like economics, organizational behavior, and psychology. These scholars were utilized to stringently test the validity of the implicit definition developed in the first study. Based on these two studies Nag, Hambrick, Chen (2007), developed the definition that the field of strategic management deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments. The benefit of having this definition is that it allows strategic management scholars to frame the debate about what they want the field to become, or how they want it to change. Further, the studies conducted suggest that strategic management acts as an intellectual brokering entity, which captures business policy as a concept and allows scholars to simultaneously pursue multiple research orientations by members who hail from a wide variety of disciplinary backgrounds. Strategic management allows for organizations to identify and manage their sources of sustainable competitive advantages, which can be found in different places at different points in time within the industry (Collins, 1994). Over time, strategic management can contribute to an organization because it helps make the link between internal characteristics and an organization’s long-term performance and survival (Meyers, 1991). Without a strategy, firms would be unguided on which direction to pursue to help maintain the longevity of the organization and how to accurately target their target market and bring services and products that meet consumer needs. Strategic management can be used to seek to organize, allocate and account for the equally unpredictable activities of personnel, production, and external competition (Negus, 1998). This accountable gained through strategic management aids upper-level management in maintaining financial performance, the well-being of employees, and social responsibility of the organization (Hambrick et al., 1996).

Question 5

o 4 theories in SM

Answer 5

 In 1988, Williamson published the seminal article related to transaction cost economics (TEC). TCE adopts a comparative contractual approach to the study of an economic organization in which the transaction is made the basic unit of analysis and the details of governance structures and human actors are brought under review (Eisenhardt, 1989). The core idea in agency theory is the notion of goal incongruence between an agent and a principal Jensen & Meckling, 1976). The concept of information asymmetry is central to principal-agent models: the agent is assumed to possess private information that the principal is only able to acquire with added cost and effort (Baiman, Evans, & Noel, 1987). Although agency theory was originally conceptualized at the individual level of analysis, it has previously been applied to understand principal-agent conflicts in interfirm relationships such as outsourcing alliances because its basic assumptions hold irrespective of whether the involved entities are individuals or organizations (Reuer & Ragozzino, 2006), which is how it can be integrated with TEC. Both theories deal with bounded rationality and opportunism. Bounded Rationality is the idea that in decision-making, the rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision (Eisenhardt, 1989). Opportunism is a deep condition of self-interest seeking that contemplates guile (Eisenhardt, 1989). Transaction cost theory and agency theory essentially deal with the same issues and problems. Where agency theory focuses on the individual agent, transaction cost theory focuses on the individual transaction. Agency theory looks at the tendency of directors to act in their own best interests, pursuing salary and status. Transaction cost theory considers that managers (or directors) may arrange transactions in an opportunistic way (Tiwana & Bush, 2007; Kaplan, 2015).
 See following for other two theories and the compare and contrast
• Contrast the difference between Porter’s Five Forces and Barney’s resource Based View theory for

Question 6

o SM & Business policy

Answer 6

 Strategic management is an interesting academic discipline for several reasons and has significant influence on how managers and organizations conduct daily operations and seek to create sustainable competitive advantages. Strategic management is an academic field that has been linked to economics, sociology, marketing, finance, and psychology. In 1979, Schendel and Hofer changed the name of the field from business policy to strategic management. The main challenge of the field was determining exactly what is it? The questions of what does it mean to be doing research in strategic management? what does it take to be seen as a strategic management scholar? have also remained unanswered for a majority of the developmental stages of the field. Another challenge is that researchers focused on everything but addressing the basic question of what strategic management really is. Researchers focused on the fields’ emphasis as it related to the firm (Hoskisson et al. 1999), Summer et al., (1900) focused on the historical progression and status of doctoral education in the field; and Ramos-Rodriguez and Navarro (2004) used citation analysis to chart the intellectual progression of the field. The field of strategic management intersects with several other well-developed fields and is highly contestable and ambiguous (Hambrink, 1990; Spender, 2001). This leaves the field open to intellectual and practical attack (Nag, Hambrick & Chen, 2007). Strategic management at its early development stages was a field that had no clear direction and has not been clearly defined, which was another challenge. The field had a variety of definitions that addressed or referred to general managers, the firm/organizations as the general unit of analysis, the importance of organizational performance or success, the external environment, internal resources (Bracker, 1980), and strategy implementation. To address these and other challenges Nag, Hambrick, Chen (2007), conducted two studies. The first gathered scholars together to try to distinguish what strategic management research is through the analysis of abstracts, which lead to the use of automated text analysis to identify the distinctive lexicon of the field. From this the authors were able to derive the implicit consensual definition of strategic management. The second built off of the first involved surveying boundary-spanners who are scholars who work in both strategic management and another fields like economics, organizational behavior, psychology. These scholars were utilized to stringently test the validity of the implicit definition developed in the first study. Based on these two studies Nag, Hambrick, Chen (2007), developed the definition that the field of strategic management deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments. The benefit of having this definition is that it allows strategic management scholars to frame the debate about what they want the field to become, or how they want it to change. Further the studies conducted suggest that strategic management acts as an intellectual brokering entity, which thrives by enabling the simultaneous pursuit of multiple research orientations by members who hail from a wide variety of disciplinary and philosophical regimes.

Question 7

o Porters 5 Forces

Answer 7

 Potters five forces related to resource based view and look at barriers to entry at the industry level, and the five forces model says that some industries are easy to get into and others are not.

Question 8

o What is tacit knowledge?

Answer 8

 Knowledge occupied by knowledge that cannot be articulated (nelson, an evolutionary theory of economic change pg. 76)

Question 9

o What is an idiosyncratic resource?

Answer 9

 Unique resources that cannot be recreated for transferable from company to company through human capital. Example would be knowledge created by employees, group work to develop an idea or product

Question 10

o What is the research process?

Answer 10

 The continuous expansion of knowledge involving the generation, refutation and application of theories

Question 11

o What is basic research?

Answer 11

 Research that is to acquire knowledge and understanding of a topic or concept

Question 12

o What is applied research?

Answer 12

 Taking basic research and researching it in a specific context or scenario

Question 13

o What is the Austrian Based View? How does it compare to others like neoclassical and IO?

Answer 13

 Porter =barrier to entry
 Barney =resources
 Austrian =entrepreneurial innovation

Question 14

o What is a sustained competitive advantage?

Answer 14

 Sustained competitive advantage is when the firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy

Question 15

o Resource Based View (competitive advantages)

Answer 15

 Contributions from:
• IO (Bain 1050; Caves 1980; Porter 1977)
• TCE (Coase 1937, Williamson 1975)
• SM (Andrews, 1971; Rumelt 1974; Ansoff 1955)
 Seminal Work
• Barney 1986 & 1991
o Strategic facto markets are where firms acquire needed resources
o Link between resources and sustained competitive advantage
• Lippman & Rumelt 1982
o Introduces the concept of uncertain imitability to explain the origin and persistence of inter-firm differences
• Penrose 1959
o Expansion of firms is largely based on opportunities to use productive heterogeneous resources more effectively
• Rumelt 1984
o Firms are bundles of productive resources whole value will vary due to context
• Teece 1980
• Peteraf 1993
• Wernerfelt 1984
o Tool for analyzing a firms resource position
o Balance between exploiting existing resources and developing new ones
o Refocus strategy on internal aspects of firm
o First mover advantages
o Firm as bundles of resources and heterogeneous and immobile
 Assumptions
• Firms can be resource heterogeneous and that resources are imperfectly mobile, meaning resources heterogeneity can be long lasting (Barney 1991)
 Attributes of the firm as sources of economic rents and the fundamental drivers of performance and competitive advantages (barney 1991; Rumelt 1984)
 Barney 1991-resources are unique if they are (VRIN):
• Valuable= generate economic rents
• Rare (Scarce) =when they are in insufficient supply to satisfy demand (Peteraf 1993) because they are fixed or quasi fixed
• Inimitable
• Non-tradable= can be accumulated but cannot be exchanged on the market as a result of their tacit dimension
• In resource based view resources must have 4 characteristics, what are they?
o Value, rareness, imperfect imitability, and sustainability
• What are the three categories of firm resources?
o Physical capital, human capital, and organizational capital
•
 Resources limit the choices of markets to enter and expect profits (Mahoney et al., 1992’ Wenerfelt 1989)
 Resources
• Form resources are strengths that firms can use to conceive of and implement strategies that improve its efficient and effectiveness (Barney 1991)
• All assets, capabilities, organizational processes, firm attributes, information and knowledge (Barney 1991)
• Land and equipment, labor, and capital; things that are tangible and intangible (Mahoney et all 1992; Penrose 1959)
 Dark side of resources
• Large resource endowments may reduce experimentation (Mosakowski, 2001)
• Managers face dilemma that capabilities simultaneously inhibit and enhance development (Barton 1992)
 Peteraf (1993) argues that sustained competitive advantages require four conditions:
• resources heterogeneity=leads to rents
• ex post limits to competition= rents are not competed away
• imperfect factor mobility= resources are semi-permanently bounded to the firm
• ex ante limits to competition= strategic factor markets or accumulations must be imperfect
 Penrose stated that RBV borrowed the notion of how resources shape firm behavior and organizational growth over time (Silverman, 2002)
 Critiques
• Nothing about the external environment
• Doesn’t meet requirements of a theoretical structure; overly inclusive and imprecise definitions of resources (Priem & Butler 19–)
• Conner 1991 issues that need to be addressed: unique assets, stocks and flows, proxies for resources, and game theoretic approaches. RBV is approaching a threshold as a theory of the firm and is significantly different than the five other theories because its rejects at least one major element of each but it shares similarities.
 Future research
• Analyze nature of market failure
 In 1980, J. Barney published the now seminal article about the resource-based view (RBV). The fundamental principle of the resource-based view is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal (Werner Felt, 1984; Rumelt, 1984). Achieving sustained competitive advantages allows the firm to earn economic rents or above average returns. In turn, this focuses attention on how firms achieve and sustain advantages. The resource-based view contends that the answer to this question lies in the possession of certain key resources, that is, resources that have characteristics such as value, barriers to duplication and appropriability. A sustainable competitive advantage can be obtained if the firm effectively deploys these resources in its product-markets. Therefore, the RBV emphasizes strategic choice, charging the firm’s management with the important tasks of identifying, developing, and deploying key resources to maximize returns”. (Fahy & Smithee, 1999).
 Managers In RBV
• Managers have greater role than in institutional theory.
• Managers hold different expectations so firm resources can be used it a variety of ways
• Management of resources can lead to competitive advantages

Question 16

TCE

Answer 16

 Why do orgs exist and focuses on inter-org transactions as its unit of analysis and holds that the aim of actors is to economize transaction costs
 Ability to align transactions with governance structures in a cost economizing way
 Agents are boundedly rational and opportunistic
 The cost associated with doing business
 Related mostly to contracts
 How does the firm ensure that things are done correctly by means of contract?
 Williamson 1975 = uncertainty, asset specificity, frequency of exchange
 Teece 1986 = appropriability
 Seminal work
• Coase 1937
• Williamson 1975 a & b; 1981
• Teece 1986
 Bounded rationality = It leads to parties not being able to foresee all the possible consequences of a contract (March & Simon 1958)
• Limits in formulating and solving complex problems otherwise actors behave as rational and some opportunistically (Williamson 1975)
 Opportunism = Precludes the possibility of uncertainty being made up by promises; don’t play by the rules
•
 Criticisms
• TCE focuses on cost minimization; understates the cost or organizing negates the role of social relationships in economic transactions (Barney & Hesterly, 1996)
• Fails to address how those affiliated with org agree on goals
• Cannot explain why some orgs outperform others

Question 17

o Bounded rationality

Answer 17

 It leads to parties not being able to foresee all the possible consequences of a contract (March & Simon 1958)
 Limits in formulating and solving complex problems otherwise actors behave as rational and some opportunistically (Williamson 1975)


Question 18

o Opportunism

Answer 18

 Precludes the possibility of uncertainty being made up by promises

Question 19

o Asset specificity

Answer 19

 Asset specificity is a term related to the inter-party relationships of a transaction. It is usually defined as the extent to which the investments made to support a particular transaction have a higher value to that transaction than they would have if they were redeployed for any other purpose.
 Physical-Asset Specificity
• Equipment and machinery that produce inputs specific to a particular customer or are specialized to use an input of a particular supplier are examples of physical asset specificity. For instance, the giant presses for stamping out automobile body parts (known as automobile dies) are specific to the automobile manufacturer. Chrysler Intrepid automobile bodies have little value to other automobile manufacturers. The efficiency of boilers in a coal-burning electricity-generation plant can be increased if they are designed for a specific type of coal. However, this means that they are less efficient if they burn coal with differing heat, sulfur, moisture, or chemical content.
 Site Specificity
• Site specificity occurs when investments in productive assets are made in close physical proximity to each other. Geographical proximity of assets for different stages of production reduces inventory, transportation, and sometimes processing costs. Consider the production of semi-finished steel. Locating the blast furnace, steelmaking furnace, and casting unit’s side-by-side or check-by-jowl eliminates the need to reheat the intermediate products produced in each stage. So called thermal economics are realized from the fuel savings since side-by-side location means it is not necessary to reheat the intermediate inputs: pig iron and steel ingots (Bain 1959, p. 156). Specificity arises, however, because in many instances the assets are not likely to be mobile - they cannot be relocated at all or without incurring substantial cost.
 Human-Assed Specificity
• Human-asset specificity refers to the accumulation of knowledge and expertise that is specific to one trading partner. The design and development of a new automobile model has traditionally been a very complicated and time-intensive process. It involves close collaboration between the car company and its parts suppliers in the design and engineering of component. As a result those suppliers that participate in the design process acquire knowledge specific to the production of those components.
 Dedicated Assets
• Dedicated assets by an input supplier are investments in general capital to meet the demand of a specific buyer. The assets are not specific to the buyer, except that if the specific customer decided not to purchase, the input supplier would have substantial excess capacity. In the late 1980s, The NutraSweet Company was the largest producer of the artificial sweetened aspartame by volume was for diet soft drinks, making Coca-Cola and Pepsi the largest buyers. The investment in aspartame capacity by The NutraSweet Company is therefore an example or dedicated assets.
 Quelle: Church/Ware, Industrial Organization, Boston 2000, S. 69 f.

Question 20

o Dynamic view of strategy

Answer 20

 Harvard Business review 1999
 Sloan Management Review 1999
 A company must first identify and colonize a distinctive strategic position in its industry and then excel at playing the game in this position, thus making it the most attractive position in the industry. While competing in its current position, a company also must search continuously for new strategic positions. The company then must attempt to manage both positions simultaneously. As the old position matures and declines, the company must slowly make a transition to the new, at which point, it must start the cycle again. While fighting it out in the new position, it must again search to discover another viable position to colonize.

Question 21

o Agency theory

Answer 21

 Rooted in the study of economics
 Interest of principals and agents can diverse in ways that cause cost to principals. These cost can be limited by design of contracts and by the use of governance mechanisms
 Firm is the typical level of analysis
 Coase 1937- developed foundational thoughts regarding agency theory- firms are composed of nexus of contracts
 Can be applied to dyadic relationships
• Power and control between principal and agent
• Barney et all 19996; Scott 1998
 Theory of ownership structure of the firm (Jensen & Meckling 1976)
 Seeks to understand the causes and consequences of goal incongruence and principal agent problems (Barney et al 1996)
 Principal-agent relationship should reflect efficient organization of information and risk bearing cost (Eisenhardt 1989)
 Agency theory differs from TCE in it inter-organizational emphasis on the risk attitudes of principals and agents (Eisenhardt 1989)
 Agency problems occur whenever the principal delegates authority to the agent and the welfare of the principal is affected by the choices of the agent Arrow 1985
 Principal
• Individual or group of individuals who delegates to authority to another to achieve a certain outcome and whose welfare is affected by the choices of the agent (Eisenhardt, 1989)
 Agent
• The individual or group of individuals who set out to execute an activity or set of activities to fulfill the principal’s goals or objectives (Eisenhardt 1989)
 Agency cost
• Type of transaction cost that needs to be incurred by the principal to protect his or her interest from the probability that agents will engage in behavior that is incongruent with these interest (Barney 1996)
 Agency cost arise from division of capital and labor
• Fama & Jensen 1983
• Jensen & Meckling 1976
 Agency cost
• Jensen & meckling 1976
o Arise because of the separation ownership and control
o Categories of agency cost
 Monitoring by principal (boards)
 Bonding expenditures by agents
 Residual loss
• Large the firm the higher the agency costs
 Eisenhardt 1989
• Agency theory offers unique insight into information systems, outcome uncertainty, incentives, and risk.
• Empirically valid perspective
 2 types
• Positivist
o Focused on identifying situations in which the principal and agent are likely to have conflicting goals and then describing the governance mechanisms that limit the agent’s self-behavior
• Principal Agent
o Focus is on determining the optimal contract, behavior vs. outcome between the principal and the agent
 Assumptions
• People-self-interest, bounded rationally, risk aversion
• Org- goal conflict among members
• Information-information’s a commodity which can be purchased
 Several links to other organizational perspectives including political, contingency, org. control and traction cost (eisenhardt 1989)

Question 22

 Future research

Answer 22

• How does it apply to M&A decision; apply in more empirical context

Question 23

o Resource dependency theory

Answer 23

 Relates to an organization’s behavior to critical resources that the organization need for its survival and functioning. No organization is self-sufficient. Find ways to eliminate or reduce dependency on outside resources or to achieve stability in its relationships with these whom it depends on for resources (Pfeffer & Salancik 1978)
 Theory of organizations that explains organizational and inter-organizational behavior in terms of the resources that an organization needs to survive and function
 RDT characterizes the corporation as an open system, dependent on contingencies in the external environment
 Recognizes the influence of external factors on organizational behavior
 Managers can act to reduce environmental uncertainty and dependence
 Central to these actions is the concept of power, which is the control over vital resources
 Key authors
• Pfeffer & Salanicj 1978
o Organizations determine what resources they need from the environment in order to adapt to its environment
o Need for resources creates dependency
• Thomas 1967
o Exchange or powered dependency model
• Emerson 1962
o Dependency is the opposite of power
 Criticisms
• Not specify which accommodations have positive and negative effects on uncertainty
• No discussion of cost

Question 24

o Social ties

Answer 24

 Weak ties are beneficial because it helps to extend your network but you do not need to develop these ties because you have a connection with someone who is a strong tie that bridges you to the weak tie
 Three types of capital that can be used in the competitive arena
• Financial
• Human
• Social
o The larger your social capital the higher the rate of return
• Social capital theory

Question 25

o TMT (related to firm strategy and performance)

Answer 25

 The impact of decision-specific characteristics on organizational decision-making processes is still quite limited within the literature (Papadakis and Lioukas, 1996; Rajagopalan et al., 1993). Organizations are shaped by the stream of strategic decisions its managers make over time and by how they make those decisions, which can present difficulty (Bourgeois, 1984; Eisenhardt, 1989; Mintzberg & Waters, 1985). Managers often work in teams to make strategic decisions because the complexity and ambiguity of the issues with which they must grapple can overwhelm the capacities of any one individual (Child, 1972; Hambrick & Mason, 1984; Mason & Mitroff, 1981). For management, it can be difficult to decide on which strategic decision is best and oftentimes teams are the best way to make hard strategic decisions become easier especially when considering what is best for the organization as a whole. A team’s decision-making effectiveness depends in part upon its members’ cooperativeness in providing information and in fully airing differences in assumptions and interpretations (Schweiger, Sandberg, & Rechner, 1989). The ultimate value of high-quality decisions depends to a great extent upon the willingness of managers to cooperate in implementing those decisions (Guth & MacMillan, 1986; Maier, 1970). The processes by which strategic decisions are made have a significant impact on team members. Specifically, the manner in which team leaders elicit, receive, and respond to team members’ input affects their attitudes toward the decisions themselves and toward the other members of teams (Korsgaard, Schweiger, and Sapienz, 1995). Leaders of strategic decision-making teams can use procedures that improve the chances of gaining cooperation and commitment to decisions without sacrificing the quality of decisions in the process (Korsgaard, Schweiger, and Sapienz, 1995).

Question 26

o Critical contingencies

Answer 26

 Extending this assumption to the strategy context, a major reason for its acceptance is that the field of business policy exemplified by the initial strategy paradigm (Schendel & Hofer, 1979) is rooted in the concept of matching organizational resources with the corresponding environmental context (Andrews, 1980; Chandler, 1962). Further, there is a belief that no universal set of strategic choices exists that is optimal for all businesses, irrespective of their resource positions and environmental context

Question 27

o Dynamic capabilities and competencies

Answer 27

 Strategic decision making to create value for the firm within dynamic markets by manipulating resources into new value-creating strategic
 If the resources are valuable but the market is dynamic than the resources will lose their value.
 How do you maintain resources in a dynamic market
 The 4 requirements. This link is how it ties to the RBV
 Explain what dynamic capabilities are? How can dynamic capabilities aid organizations with strategic management and market positioning?
• The dynamic capabilities approach, which endeavors to analyze the sources of wealth creation capture by firms. Dynamic capabilities are Efforts are made to identify the dimensions of firm-specific capabilities that can be sources of advantages and to explain how combinations of competences and resources can be developed, deployed, and protected (Teece, Pisano, and Shuen, 1997). Further Capabilities are considered core if they differentiate a company strategically (Barton, 1992). The ‘dynamic capabilities’ approach in order to stress exploiting existing internal and external firm-specific competencies to address changing environments (Teece, Pisano, and Shuen, 1997). Teece et al. (1997) refer to the ability to achieve new forms of competitive advantage as ‘dynamic capabilities’ to emphasize two key aspects that were not the focus of attention in previous strategy perspectives. Furthermore, capabilities can also reflect an ability to perform the basic functional activities of the firm, such as plant layout, distribution logistics, and marketing campaigns, more efficiently than a competitor (Collins, 1994). The term ‘dynamic’ refers to the capacity to renew competences so as to achieve congruence with the changing business environment; certain innovative responses are required when time-to-market and timing are critical, the rate of technological change is rapid, and the nature of future competition and markets are difficult to determine. The term ‘capabilities’ emphasizes the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competencies to match the requirements of a changing environment. organizational capabilities are embedded in firm routines, and that those routines are a product of the organization as an entire system and its strategic mission (Nelson and Winter, 1982; Barney, 1986a, 1992; Dosi, Teece, and Winter, 1990; Dosi and Marengo, 1992).To be strategic, a capability must be honed to a user’s needs (so there is a source of revenues), unique (so that the products/services produced can be priced without too much regard to competition) and difficult to replicate (so profits will not compete away (Teece, Pisano, and Shuen, 1997). In practice it is advised that superior normative characteristics to capabilities, such as organizational learning, and rapid product development, are the ‘best’ sources of sustainable competitive advantage (Prahalad and Hamel, 1990; Senge, 1992; Ulrich and Lake, 1990; Stalk, Evans, and Shulman, 1992; Treacy and Wiersema, 1993). When a firm is developing capabilities this will allow for firms to simultaneously work on how to strategically align the firm’s resources to achieve a competitive advantage. When the firm has a thorough understanding of its internal and external capabilities the firm is more likely to understand their market position. Since organizational capabilities complement the understanding of product market position and tangible resources they can be used to develop strategies that help aid the organization to improve its strategic position through marketing techniques.

Question 28

o Competitive Dynamics

Answer 28

 A series of actions (moves) and reactions (counter moves) among firms in an industry (smith, Ferrier & Ndofor 2001)
 Smaller forms are faster and have more propensity to act than larger firms; and larger firms are more strategic; large firms are more likely to respond to competitors actions and these reactions are often subtle; larger firms announces reaction more quickly by smaller firms are quicker at implementing these reactions(Chen & Hambrick 1995)
 Larger firms carry out more actions (Young, smothm and Grimm 1996)

Question 29

o Firm resources and sustained competitive advantages

Answer 29

 No single theory to explain firm competitive advantages (Henderson & Mitchell 1997)
 Admit & Shoemakers 1993
 Barney 1991
• Contends that sustained advantage is an advantage that continues to exist after efforts to duplicate have failed
 Completive advantage is the ability to implement a value creating strategy not simultaneously being implemented by any current or potential competitors (southwest)

Question 30

o First mover advantages (prime mover advantages)

Answer 30

 Firm that takes the initial complete action to build or defend its competitive advantages or to improve its market position is considered to have first over advantage (Schumpeter, 1934)
 Considered to achieve competitive advantage by taking innovative action
 Second mover resorts to imitation; have potential for greater flexibility in developing response (Smith, Grimm, and Gannon, 1992)
 Subsequent movers
• Slower moves and significantly less achieved by the move/action; only successful opportunities will be pursed
 First-mover advantages can be defined in terms of the ability of pioneering firms to earn positive economic profits (i.e. profits in excess of the cost of capital). First-mover advantages arise endogenously within a multi-stage process (Lieberman and D. B. Montgomery, 1988). First-mover advantages arise from three primary sources: (1) technological leadership, (2) preemption of assets, and (3) buyer switching costs. In order for a firm to become a first-mover or pioneer, a feasible opportunity must present itself. The occurrence of such an opportunity depends on the firm’s own foresight, skill and luck, and that of competitors (Lieberman and D. B. Montgomery, 1988). A firm can achieve first-mover status by producing a new product, using a new process, or entering a new market (Lieberman and D. B. Montgomery, 1990). Being the market’s first entrant is generally more costly than being an early follower or a late entrant. The reason is that product innovation tends to be more costly than product imitation (Mansfield, Schwartz, and Wagner, 1981; Levin et al., 1987). Though being the first firm to pursue an opportunity is a necessary condition for exploiting entry-related advantages, the factors involved in achieving and sustaining first-mover advantages are more complex than a simple order of entry effect. The first mover advantages, however, do not last forever (Lieberman & Montgomery, 1988). Maintainability of a first mover advantage is based primarily upon limiting imitability (Barney, 1986b; Dierickx & Cool, 1989; Reed & DeFillippi, 1990) and the learning curve (Burgess, 1989; Dixit, 1980; Ghemawat, 1984; Lieberman, 1989). In order for first-mover advantages to be maintained the firm has to understand its resources and how those resources can be used to create a sustained advantage. Firm resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, and etc. controlled by the firm that enables the firm to conceive of and implement strategies that improve its efficiency and effectiveness (Barney, 1991). There are three categories of firm resources; physical capital, human capital, and organizational capital. A competitive advantage is defined as when a firm implements a value creating strategy not simultaneously being implemented by any current or potential competitors (Barney, 1991). The sustained competitive advantage is when the firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy (Barney, 1991). The sustainability of first-mover and early mover advantages is likely to be dependent upon the existence of ‘isolating mechanisms’ (Rumelt, 1984, 1987), such as patent protection, switching costs, brand loyalty, proprietary learning, economies of scale and scope, or buyer uncertainty about quality. The more readily available these ‘isolating mechanisms’ are in an industry, the more difficult it will be for later entrants to erode the price and market share advantages that are enjoyed by the first-mover and other early movers (Makadok, 1998). However, when firms are not first movers they still may benefit from those firms who are first-movers. Late-movers can potentially steal or reduces a first-movers firm’s ability to maintain a competitive advantage by being able to improve how products or services are made and provided within the industry by learning from the first-movers mistakes. Late movers may benefit from: (1) the ability to ‘free ride’ on first-mover investments, (2) resolution of technological and market uncertainty, (3) technological discontinuities that provide ‘gateways’ for new entry, and (4) various types of ‘incumbent inertia’ that make it difficult for the incumbent to adapt to environmental change (Lieberman and D. B. Montgomery, 1988).

Question 31

o Knowledge based view (compare and contrast with RBV)

Answer 31

 Some scholars view RBV as just a re-labeling of resource-based thinking that adds little to the current understanding of the sources of superior performance. Knowledge is considered as “justified true belief” and the focus of theories is on the explicit nature of knowledge (Nonaka and Takeuchi, 1995). In other words, knowledge is modeled as an unambiguous, reducible and easily transferable construct, while knowing is associated with processing information. This approach to knowledge has given rise to several theories that suggest a machine-like functioning of organizations (Eisenhardt and Santos, 2000). Knowledge is viewed as residing within the individual, and the primary role of the organization is knowledge application rather than knowledge creation (Grant, 1996). With regard to knowledge, the issue of transferability is important, not only between firms but even more critically, within the firm. The efficiency with which knowledge can be transferred depends, in part, upon knowledge’s potential for aggregation (Grant, 1996). Knowledge transfer involves both transmission and receipt. Knowledge receipt has been analyzed in terms of the absorptive capacity of the recipient (Cohen and Levinthal, 1990). At both individual and organizational levels, knowledge absorption depends upon the recipient’s ability to add new knowledge to existing knowledge (Grant, 1996). Knowledge is a resource which is subject to uniquely complex problems of appropriability. Tacit knowledge is not directly appropriable because it cannot be directly transferred: it can be appropriated only through its application to productive activity. Explicit knowledge suffers from two key problems of appropriability: first, as a public or nonrivalrous good, anyone who acquires it can resell without losing it (Arrow, 1984); second, the mere act of marketing knowledge makes it available to potential buyers (Grant, 1996).
 The resource-based view of the firm is less a theory of firm structure and behavior as an attempt to explain and predict why some firms are able to establish positions of sustainable competitive advantage and, in so doing, earn superior returns (Grant, 1996). The resource-based view perceives the firm as a unique bundle of idiosyncratic resources and capabilities where the primary task of management is to maximize value through the optimal deployment of existing resources and capabilities while developing the firm’s resource base for the future (Grant, 1996). The issues with which the knowledge-based view concerns itself extend beyond the traditional concerns of strategic management- strategic choice and competitive advantage-and address some other fundamental concerns of the theory of the firm, notably the nature of coordination within the firm, organizational structure, the role of management and the allocation of decision-making rights, determinants of firm boundaries, and the theory of innovation (Grant, 1996).

Question 32

o Governance

Answer 32

 Determination of the broad uses to which org resources will be deployed and the resolution of conflicts among the myriad of participants in org

Question 33

o Strategic alliances/ M&As

Answer 33

 Barney et al 1996)
• Contractual alliance= develop, design, manufacture, market or distribute products and where a separate firm is not created to manage the relationship
• Joint venture=creation of a separate firm to manage this relationship. Partners provide capital and other resources
 M&As two firms combine as coequals; tool for firm growth improved performance (Chen 1996)
 Resource availability will affect the choice of alliance or acquisitions (Inkpen 2001)
 Alliance and performance
• Growth and profitability = Ernst et all 2001
• product development is positively related to performance (Rothaermel 2001)
 Resources
• Stuart 2000-smaller firms drive status and benefit more from alliances with larger established firms
• Firms seek access to resources they do not have through an alliance (Gulati et al 2000)
 Social network
• Greater alliance diversity creates more social capital Baker, 2000)
 Future research
• Trust in alliance (barney & Hansen 1994)
• Networks (Gulati et all 2000)
• International JVs (steesma & Lyles 2000)
 How important are strategic alliances?
• Strategic alliances represent an important form of cooperation between two or more business entities. A strategic alliance might be viewed as a lesser form of a merger (Zhang & Zhang, 2005). It is not a merger per se since alliance partners remain separate business entities and retain their decision-making autonomy. While merger activities have slowed down significantly since 2000, strategic alliances are increasingly, and widely, used by firms (Zhang & Zhang, 2005). They are particularly prevalent in network-oriented industries such as airline, shipping, telecommunications, multimodal transportation, and logistics industries. The use of strategic alliances by firms can also be to acquire technology-based capabilities from alliance partners, and an extensive literature discusses the features of alliances and their participants that facilitate the flow of technology-based capabilities and other knowledge among partners (e.g., Kogut, 1988; Hamel, Doz, and Prahalad, 1989; Cohen and Levinthal, 1990; Hamel, 1991). Alliances can be used for a number of reasons, one being to help dominant strategy and prevent entry into the industry (Zhang & Zhang, 2005). Secondly, Strong networks of relationships can help to mitigate the liability firm’s face when they invest abroad (Shaner & Maznevski, 2011). Additionally, strategic alliances can improve cross-cultural interactions to bring together people who may have different patterns of behaving and believing, and different cognitive blueprints for interpreting the world (Kluckhohn and Kroeberg 1952; Black and Mendenhall 1990).

Question 34

o SM & paradigm shift or development

Answer 34

 SM started from business policy and there was an initial focus on the firm with Penrose 1959 theory of the firm. This theory explains that firms are made up of resource bundles. From this the focus shifted to Porters 5 forces (1981), which grow out of industry profitability. The literature further expanded to include the RBV (Barney 1991), which was rooted in Penrose 1959 and Pfeffer & Salancik 1978. Wenerfelt 1984 explained that the paradigm has shifted from the market side to the resource side
 Future developments involve dynamic capabilities (Cohen & Leventhal 1990) which can be viewed as more long term resources and aid in the RBV

Question 35

o Mobility barriers

Answer 35

 Caves & Porter 1977
 Bain 1954
 Mobility barriers” is therefore a general term which includes barriers to entry, barriers to exit, and barriers to intra-industry changes in market position. More specifically, mobility barriers may refer to barriers to movement from one strategic group of firms within an industry to another group

Question 36

o Inter-organizational relationships

Answer 36

 Ring & Van de Ven 1994
 Oliver 1990
 Barringer & Harrison 2000
 Cropper et al 2008
 Decker 2004
 Oliver & Ebers 1998
 IORs include strategic alliances, partnerships, coalitions, joint ventures, franchises, research consortia
 Inter-organizational Relations Theory (IOR) (UPenn, 2017)
• Addresses change across organizations
• Focuses on how organizations work together
• Based on the premise that collaboration among community organizations leads to a more comprehensive coordinated approach to a complex issue that can be achieved by one organization.
• Provides a useful foundation for understanding and enhancing community mobilization to address a range of public health issues such as emergency preparedness and tobacco control.
 History and Application of Interorganizational Relations Theory (IOR)
• Beginning in the 1960s, researchers had a growing interest in how the environment affected organizational behavior.
• Specifically, interest in how organizations could decrease uncertainty in the environment through collaboration.
 Stated benefits of collaboration include:
• Access to new ideas, material, and other resources
• Reduced duplication of services
• More efficient use of resources
• Increased power and influence
• Ability to address issues beyond a single organization’s domain
• Shared responsibility for complex or controversial issues
 Alternatively, costs of collaboration include:
• Diversion of organizational resources or mission
• Incompatibility with partner organizations’ policies or positions
• Delays in taking action due to consensus building
 Factors critical to IOR formation include:
• Recognition of the need for coordination and interdependence; available resources (time, staff, and expertise).
• Mandates from a funding or regulatory agency; clear and mutually shared goals, values, interests and norms.
• Positive previous experience in working together.

Question 37

o Entrepreneurship

Answer 37

 Types (Schollhammer 1982)
• Opportunistic = internal/external corporate scanning for the purpose of detecting and adopting innovative developments
• Imitative=duplication of the ideas of others
• Acquisitive =use of vertical and horizontal integration as a means to achieve growth and or diversification; this process is more expedient than using internal innovation strategies
• Incubation= developing new ideas and strategies within an existing organization.
 Schumpeter 1935
• New combinations including doing of new things or doing of things that are already being done in a new way
 Corporate entre
• Guth & Ginsberg 1990
• Birth of new businesses within existing organizations
• Internal innovation or venturing
• Transformation of organizations through the renewal of the key ideas on which they are built
• Extending the firms domain of competencies (birgelman 1984)
• Antecedents = size, familiarity, planning horizon, time, environment
• Outcomes= business development, performance

Question 38

o Evolutionary theory

Answer 38

 Nelson and Winter 1982
 Holz 2005
 Kogut & Zander 1993
 Nelson 2009
 Nelson & Sidney 2005
 The evolutionary theory of the firm provides an alternative explanation of the firm based on routines.
 Evolutionary theory focuses especially on the technological aspects of production, it also stresses the cognitive nature of the organizational structure of the firm.
 The evolutionary theory of the firm in its original form as proposed by Nelson and Winter (1982) is similar to the ‘black-box’ view of neoclassical economics a device to study evolutionary dynamics. This view of the firm does not consider the organization of the firm in an explicit way. However, the firm is described as entity processing, storing and producing knowledge
 Evolutionary Theory (Kellogg School, 2017)
• Forget maximization and equilibrium – too rigid.
• Firms are motivated by profits, but do not maximize of some known choice set.
• Efficient firms tend to drive out inefficient ones, but do not do so instantaneously (analogous to natural selection)
• Equilibrium is never attained. External conditions are continuously changing. Firms adapt to these in order to survive, but they do not instantaneously adapt to each change.

Question 39

o Diversification

Answer 39

 Management of diverse product lines or businesses
 Pertains to the scope of the firm in terms of the industries and markets it competes (Grant 1998)
 How managers buy, create and sell different businesses to match skills and strengths with opportunities presented to the firm (Bergh 2001)
 Involves change in administrative processes not just extending product lines (Ramanujam & Varadarajan 1989)
 Seminal Work
• Rumelt 1974
o Typology based on Wrigley in which corporations are categorized into groups based upon the level of diversification.
• Wrigley 1970
 Antecedents (Hoskisson & Hitt 1990)
• Resources, External/internal incentives and managerial motives
 Tools of diversification
• Acquisitions; internal developments; restructuring
• Most popular and central topics in strategy (bergh 2001)
 Prospect theory
• Hoskisson 1990 page 474
• Risk related
 Portfolio theory
• Hoskisson 1990 page 476
• Balance out risk or mitigate risk
 Strategic contingency theory
• Hoskisson 1990 page 477

Question 40

o Muellers theory

Answer 40

 Teece 1982 page 42
 Related to increasing firm size through diversification because this could justify benefits to the employee liked increased pay. So growth justifies increases in compensation, but this does not mean that the organization is high performing

Question 41

o Efficiency based theory

Answer 41

 Teece 1982 page 43
 Have existing resources that may not be seasonal but you diversify in order to utilize capacity year round. Lawn companies in the summer they cut lawns, but in the fall and winter it shifts into cleaning sidewalks, debris, etc. this diversification allows for firms to continue to perform.

Question 42

o Why firms diversify

Answer 42

 To utilize excess capacity
 To reduce risk
 Motivation of the agent

Question 43

o Strategic groups and barriers
o Determinants of performance and measuring performance
o Strategy formulation

Answer 43

o	Strategic groups and barriers 
o	Determinants of performance and measuring performance 
o	Strategy formulation 
	Burgelamn 1983 
•	Strategy process is influenced by TMT and upper level managers 
	Fredrickson 1983 
•	Strategic processes can be simultaneously incremental and comprehensive rational 
	Antecedents 
•	Org culture 
•	Org structure
•	Environmental influences 
•	Org performance

Question 44

o Explain why operational effectiveness is not a strategy per resource-based view.

Answer 44

 Potter, 2000
 Operational Effectiveness is often confused with strategy; however, the two have a specific goal within an organization and both can be utilized to gain a competitive advantage. Operational Effectiveness (OE) means performing similar activities better than rivals perform them. OE can include efficiency and can refer to any practices that allow a company to better utilize its inputs. For example, reducing defects in products or developing better products faster. In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways. Strategic positioning means performing different activities from rivals or performing similar activities in different ways. Differences in OE can be a source of differences in profitability among competitors because they directly affect relative cost positions and levels of differentiation. Therefore, constant changes in OE are necessary to achieve profitability but will not be sufficient for long-term success.
 Strategy, on the other hand, refers to doing a set of different activities from other companies in order to provide a “unique mix of value.” Companies can generate a competitive advantage from either superior strategy or operational effectiveness, but Porter makes a pretty persuasive argument that competitive advantages from strategy are more sustainable than those derived from operational effectiveness.
 Porter argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. Since the resources used to create OE can be easily imitated, it does not meet the requirements of RBV (rare, valuable, cannot be substituted, and cannot be imitated). Therefore, it cannot be a strategy that creates a sustained competitive advantage.

Question 45

o Williamson’s Transaction Cost Economic Theory is built on two premises: bounded rationality and opportunism. Explain this theory and state some of its pros and cons.

Answer 45

 Williamson, 1988
 Simon, 1989, 1991
 Coase, 1937, 1960
 Bounded Rationality
• Intendedly rational, but only limitedly so
• The idea that in decision-making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision
• The limits upon the ability of human beings to adapt optimally, or even satisfactorily, to complex environments.
• Implies the presence of contractual incompleteness and, consequently, a need for adaptive, sequential decision-making
 Opportunism
• Which is a deep condition of self-interest seeking that contemplates guile
• Its implication is that contracts will often need various types of safeguards, such as ‘hostages’
 Transaction cost economics
• Adopts a comparative contractual approach to the study of economic organization in which the transaction is made the basic unit of analysis and the details of governance structures and human actors are brought under review.
• TCE asserts that the transaction is the basic unit of economic activity, where a transaction “may be said to occur when a good or service is traded across a technologically separable interface” (Williamson 1993). A transaction cost is a cost incurred in making an economic exchange. Transaction costs are those over and beyond the price of the product or service procured. They broadly break down into motivation and coordination costs (Milgrom and Roberts 1992). Opportunism (Williamson 1985) and agency costs (Jensen and Meckling 1976) are components of motivation costs. Coordination costs include search (Stigler 1961), input coordination (Armen and Demsetz 1972), and measurement costs (Barzel 1982). In reality, these costs can be extended across multiple economic exchanges. TCE argues that transactions have distinct characteristics that, in combination with the attributes of alternate governance structures, produce different production and transaction costs. The three key transaction characteristics are (1) asset specificity, (2) uncertainty, and (3) frequency of transactions (Williamson 1981).
o Asset specificity refers to the degree to which the investments necessary for a transaction are specific to that particular transaction (Williamson 1981).
o Uncertainty can come from different sources, most notably environmental variability and behavioral uncertainty (Rindfleisch and Heide 1997).
o frequency of transactions influences both transaction and production cost
 Transaction cost economics maintains that the micro analytics matter in three basic respects: (1) behavioral assumptions, (2) dimensionalizing transactions, and (3) process features.
• is bounded rationality and opportunism
• is the transaction be made the basic unit of analysis
• is process outcome has three common features: it is manifested intertemporal; it is an unanticipated consequence; and it is often very subtle
 Transactions can be organized under a spectrum of governance structures ranging from pure, anonymous spot markets—where the good or service is generic and identities of buyers and sellers are immaterial to the transaction—to fully integrated firms or organizations, where both the trading parties are under unified ownership and control, and the transaction can be modified by managerial fiat.
 TCE is part of a broader effort to study the economics of organization, which includes agency/mechanism-design theory, team theory, property rights theory, and resource-based/competency theories. Many of these are explored in this handbook and, as appropriate, we make references to the similarities and difference between them and TCE.
 The TCE offers the transaction as the unit of analysis and has as its central concern to create value from the coordination of governance structures that, according to Williamson (1985), may occur through vertical integration, market or contracts. The goal is to reduce ultimately transaction costs through efficiency, aiming to achieve sustainable competitive advantages.
 According to Williamson (1985), the TCE considers that the choice of the appropriate governance structure will be based on certain attributes, called transaction attributes, namely: the specificity of assets, the frequency and the uncertainty. TCE has the basic assumption that the alignment between the governance structures, identified above, and the transaction attributes define the firm’s competitiveness. In addition, it is considered that behavioral assumptions related to limited rationality and opportunistic attitudes (WILLIAMSON, 1985) will also influence the choice of certain governance structures at the expense of other.
 Cons
• TCE ignored the role of differential capabilities in structuring economic organization (Richardson 1972); neglected power relations (Perrow 1986), trust, and other forms of social embeddedness (Granovetter 1985); and overlooked evolutionary considerations, including Knightian uncertainty and market processes (Langlois 1984
• It focuses on Cost Minimization
• It understates the cost of organizing
• It neglects the role of social relationship in economic transactions
 Pros
• Can be applied to diverse organizational phenomena like diffusion of conglomerates
• Can create governance structures

Question 46

o Contrast the difference between Porter’s Five Forces and Barney’s resource Based View theory.

Answer 46

 Michael E. Porter in 1980
 Porter’s five forces model is an analysis tool that uses five industry forces to determine the intensity of competition in an industry and its profitability level. Is a framework which is generally used for the analysis of industry and development of business strategy? It is mainly based on the premise that a corporate strategy should meet the opportunities and threats in the organization’s outer environment. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. According to this model, the objective of corporate strategy should be to manage these competitive forces in a way that improves the position of the organization.
• Supplier Power or Bargaining Power of Suppliers
o Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their buyers. This directly affects the buying firms’ profits because it has to pay more for materials. Suppliers have strong bargaining power when:
 There are few suppliers but many buyers;
 Suppliers are large and threaten to forward integrate;
 Few substitute raw materials exist;
 Suppliers hold scarce resources;
 Cost of switching raw materials is especially high.
• Buyer Power
o Buyers have the power to demand lower price or higher product quality from industry producers when their bargaining power is strong. Lower price means lower revenues for the producer, while higher quality products usually raise production costs. Both scenarios result in lower profits for producers. Buyers exert strong bargaining power when:
 Buying in large quantities or control many access points to the final customer;
 Only few buyers exist;
 Switching costs to other supplier are low;
 They threaten to backward integrate;
 There are many substitutes;
 Buyers are price sensitive.
• Competitive Rivalry
o This force is the major determinant on how competitive and profitable an industry is. In competitive industry, firms have to compete aggressively for a market share, which results in low profits. Rivalry among competitors is intense when:
 There are many competitors;
 Exit barriers are high;
 Industry of growth is slow or negative;
 Products are not differentiated and can be easily substituted;
 Competitors are of equal size;
 Low customer loyalty.
• Threat of Substitution
o This force is especially threatening when buyers can easily find substitute products with attractive prices or better quality and when buyers can switch from one product or service to another with little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike switching from car to bicycle.
• Threat of New Entry
o This force determines how easy (or not) it is to enter a particular industry. If an industry is profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations compete for the same market share, profits start to fall. It is essential for existing organizations to create high barriers to enter to deter new entrants. Threat of new entrants is high when:
 Low amount of capital is required to enter a market;
 Existing companies can do little to retaliate;
 Existing firms do not possess patents, trademarks or do not have established brand reputation;
 There is no government regulation;
 Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to other industries);
 There is low customer loyalty;
 Products are nearly identical;
 Economies of scale can be easily achieved.
 J Barney 1980
 The fundamental principle of the resource based view is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal (Werner Felt, 1984; Rumelt, 1984). Achieving a SCA allows the firm to earn economic rents or above average returns. In turn, this focuses attention on how firms achieve and sustain advantages. The resource based view contends that the answer to this question lies in the possession of certain key resources, that is, resources that have characteristics such as value, barriers to duplication and appropriability. A sustainable competitive advantage can be obtained if the firm effectively deploys these resources in its product-markets. Therefore, the RBV emphasizes strategic choice, charging the firm’s management with the important tasks of identifying, developing and deploying key resources to maximize returns”. (Fahy and Smithee, 1999)
• Value
o Resources are valuable when they enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness. It exploits opportunities and/or neutralizes threats in a firm’s environment.
• Rareness
o Rare among a firm’s current and potential competition
• Imperfect imitability
o Firm resources can be imperfectly imitable for one or a combination of three reasons 1. The ability of a firm to obtain a resource is dependency upon unique historical conditions 2. The link between the resources possessed by a firm and a firm’s sustained competitive advantages is causally ambiguous or 3. The resource generating a firm’s advantage is socially complex
• Un-Substitutable
o There cannot be strategically equivalent substitutes for this resource that are valuable but neither rare nor imperfectly imitable. Resources are strategically equivalent when they each can be exploited separately to implement the same strategies. Substitutability can take at least two forms. The firs is that thought it may not be possible for a firm to imitate another firm’s resources exactly, it may be able to substitute a similar resource that enables it to conceive of and implement the same strategies. The second, very different firm resources can also be strategic substitutes.
 Resources are defined as anything that could be thought of as a strength or weakness of a given firm. A firm’s resources at a given time could be defined as those tangible and intangible assets which are tied semi-permanently to the firm. Examples of resources are brand names, in-house knowledge of technology, and employment of skilled personnel, trade contacts, machinery, efficient procedures, and capital. (Wernerfelt, 1984)
 Firm resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, and etc. Controlled by the firm that enables the firm to conceive of and implement strategies that improve its efficiency and effectiveness. There are three categories of firm resources, physical capital, human capital, and organizational capital. (Barney, 1991)

Question 47

• Compare & Contrast 5 Forces & RBV

Answer 47

o In RBV, resources and capabilities are considered as a root, from which the firm derives various products for various markets. Thus, in resource based view, strategy is focused on leveraging resources and capabilities across many markets and products instead of targeting specific products for precise markets. Hence, we can say that RBV is an inward looking or Inside-Outside model whilst five forces is an outward looking or an Outside- Inside model.
o One of the fundamental differences in Porter’s five forces model and the Resource based view is that they do not have the same unit of analysis. Porter’s five forces model considers industry as a unit whereas resource based view chooses a firm or an individual resource as a unit of analysis.
o In Porter’s five forces model a competitive advantage is sustained when it provides above-average returns in the long run. This is contrary to RBV where competitive advantage is sustained when the efforts by competitors to render the competitive advantage redundant, have ceased (Barney, 1991; Rumelt, 1984).
o In contrast, the resource based approach suggests that firms should position themselves strategically based on their valuable, rare, inimitable and non-substitutable resources and capabilities rather than the products and services derived from those resources and capabilities.
o RBV is an inward looking or Inside-Outside model whilst five forces is an outward looking or an Outside- Inside model.
o Further, both resource based view and Porter’s five forces model assume that constant above normal profits are possible.
o However, again the two models differ regarding the nature of the rents a firm can achieve.
o The RBV is an efficiency-based explanation of performance differences; it is concerned with Ricardian rents resulting from the scarcity of superior resources (Peteraf & Bergen, 2003) and quasi-rents or opportunity costs. According to Peteraf and Barney (2003), “Superior resources are more efficient in the sense that they enable a firm to produce more economically and better satisfy customer wants” (Peteraf & Barney, 2003) On the contrary, Porter’s five forces approach emphasizes the exercise of market power and monopoly-type rents as the sources of performance differentials (Conner, 1991).
o The Porter’s five forces model emphasizes the actions, a firm can take to earn superior profits by creating privileged market or industry positions against competitive forces whereas the Resource based view emphasizes building competitive advantage through capturing superior profits, stemming from fundamental firm-level resources and capabilities.
o While both Porter’s five forces model and Resource based view may appear to be different they are actually complementary when integrated. The industry structure and position approach helps a firm to understand its competitive environment while the resource-based view helps it to evaluate its ability to exploit strengths and respond to identified weaknesses.

Question 48

• Social Exchange Theory

Answer 48

o emerged in sociology and social psychology a distinct approach called social exchange (Emerson, 1976).
o According to Blau’s (1964) social exchange theory, social exchanges derive from informal relationships that create personal feelings of trust and obligation.
o Social exchange theory is among the most influential conceptual paradigms for understanding workplace behavior.
o Its venerable roots can be traced back to the 1920s (Malinowski, 1922), bridging such disciplines as anthropology (Firth, 1967), social psychology (Gouldner, 1960), and sociology (Blau, 1964).
o theorists agree that social exchange involves a series of interactions that generate obligations (Emerson, 1976).
o A social exchange relationship refers to an enduring interaction pattern rooted in mutual obligations and commitment to the other party’s needs (Cropanzano & Mitchell, 2005).
o The norm for reciprocity (Gouldner, 1960) is a core rule underlying social exchange relationships. People return favors by engaging in the cooperative and rewarding behavior (positive reciprocity).
o Research on the social exchange has largely focused on direct reciprocity between the favor-giver and the receiver, as in the saying “you scratch my back, and I will scratch yours.”
o Accumulating evidence from evolutionary biology and social justice research suggests that indirect reciprocity is also very prevalent (Peng, Schaubroeck, & Li, 2014).
o Furthermore, the basic principles of reinforcement psychology and microeconomics might be relevant in studying social exchange (Homans, 1961).
o Social exchange theory’s explanatory value has touched diverse areas such as social power, networks, board independence, organizational justice, psychological contracts, and leadership, among others (Cropanzano and Mitchell, 2005).
o However, some researchers and theories argue that social exchange theory is not a theory and is more of a framework.
 Emerson (1976) stated that in setting the goals for social exchange theory, researchers must understand that it is a frame of reference within which many theories -some micro and some more macro-can speak to one another, whether in an argument or in mutual support

Question 49

• Equity theory

Answer 49

o utilized in management research but also in sociology, psychology, and family and marriage research
o The primary proposition of equity theory is that individuals review the inputs and outcomes of themselves and others, and in situations of inequity, experience greater cognitive dissonance than individuals’ inequitable situations (Carrell and Dittrich, 1978).
o Equity theory involves making predictions about how individuals manage their relationships with others and Huseman, Hatfield, and Miles (1987) provided four propositions that capture the objectives of the theory
 The first is individuals evaluate their relationships with others by assessing the ratio of their outcomes from and inputs to the relationship between the outcome/input ratios of a comparison other.
 The second is if the outcome/input ratios of the individual and comparison other are perceived to be unequal, then inequity exists.
 Third, the greater the inequity the individual perceives (in the form of either over reward or under reward), the more distress the individual feels.
 Finally, the fourth proposition states that the greater the distress an individual feels, the harder he or she will work to restore equity and, thus, reduce the distress.
o Equity restoration techniques include altering or cognitively distorting inputs or outcomes, acting on or changing the comparison other, or terminating the relationship.
o Previous research on equity theory in industrial and organizational psychology has evaluated the effects of positive inequity on workers’ reactions (Mowday, 1979).
o Positive inequity refers to workers’ perceiving that the ratio between outcome and input is higher for them than it is for relevant others.
o Two basic notions in equity theory are that positive inequity first arouses guilt, and the second motivates individuals to redress this guilt through behavioral or psychological means (Brockner, et al., 1986).
o Research related to equity theory has primarily been conducted in a laboratory setting and has provided strong support for equity norms.
o The field studies have not utilized the specific comparison person measurement technique found in the laboratory research (Carrell and Dittrich, 1978).
o The lack of field studies of equity theory is surprising, considering its laboratory support and a field study comparison of equity, expectancy, and reinforcement theories’ predictions of job satisfaction (Carrell and Dittrich, 1978).

Question 50

• Equity Theory And Social Exchange Theory (Relationship)

Answer 50

o As an offspring of social exchange theory, equity theory contains a refinement that has potential importance for understanding effective exchanges (Davidson, Balswick, & Halverson, 1983). Equity theory predicts that “when individuals find themselves participating in inequitable relationships, they will become distressed. The more inequitable the relationships, the more distress individuals will feel (Walster, Walster, and Berscheid, 1978).
o Equity theory relates to social exchange theory in that they both deal with the cost and benefit aspect of a relationship, but equity theory states that not just one person in the relationship should have the opportunity to benefit from it while the other suffers the cost. Rather, in a good relationship, both benefits and costs should be balanced between the two individuals in the relationship
 

Question 51

Organizational Change

Answer 51

o Define
 Organizational change is a macro level concept that is defined as a transformation of an organization between two points in time and comparing the organization before and after the transformation (Barnett & Carroll, 1995). Organizational change has two dimensions, the first is content which consists of transformations that involve many elements of structure or those that entail radical shifts in a single element of the structure (Barnett & Carroll, 1995). The second is the way in which the transformation occurs, the speed, sequence of activities related to the change, the decision making and communication system, and the resistance encountered (Barnett & Carroll, 1995). Additionally, organizational change may be further defined when viewed from an evolutionary perspective as transitional, transformational, or developmental (Gilley, Gilley, & McMillan, 2009). Transitional change, the most common, improves the current state through minor, gradual changes in people, structure, procedures, or technology (Gilley, Gilley, & McMillan, 2009). Transformational change efforts represent a fundamental, radical shift that rejects current paradigms or questions underlying assumptions and mindsets (Kuhn, 1970). Lastly, developmental change stems from an overall philosophy of growth and development that creates a culture of building competitive advantages through continuous dynamic yet manageable change (Gilley, Gilley, & McMillan, 2009). Overall, Understanding organizational change involves examining types of change within an organization and regardless of its size, any change has a ripple effect on an organization and its employees (Miles, 2001).
 Beer, Eisenstat, & Spector, 1990 (why change programs don’t produce change); Fernandez & Rainey 2006 (managing successful OC in public sector); Reichers, Wanous, & Austin, 1997 (Understanding and managing OC); Goodstein, & Burke, 1991(creating successful OC); Quinn & Weick 1999 (organizational change and development)
 Four areas in which the pressures for change appear most powerful: people, technology, information processing and communication, and competition
 Org change as
• Kurt Lewin’s Process Model (1951)
o Unfreezing (people become aware of need for change), change( moving from old to new state of org), refreezing (making new behavior relatively permanent and resistant to further change)
• dynamic perspective (continuous)
o change happening simultaneously
o 1. Force for change; 2 recognize and define problem; 3. Problem solving process; 4. Implement the change 5. Measure, evaluate, control.
o Change agent involved through the whole process and transition management is at step 4

Question 52

o Organization culture

Answer 52

 Jaques 1952—System of publicity and collectively accepted meanings operating from a given group at a given time. This system of terms, forms, categories, and images interprets a people’s own situation to themselves
 Organizational culture is a term used to describe the environment in which people work and the influence it has on how they think, act, and experience work (Warrick, Milliman, & Ferguson, 2016). Culture can vary based on the organization and can bring out the best in people and unite them around common goals and values. Cultures can also be dysfunctional and filled with stress, tension, distrust, low morale, and lack of support. Organizational culture is a mindset, a specific way of seeing problems and solving them, and is a sense of belonging to a team (Muscalu & Halmaghi, 2015). Organizational culture is a mindset, a specific way of seeing problems and solve them, a sense of belonging to a team. At the same time, organizational culture gives rise to a certain jargon specific to each organization, jargon they understand only members of that organization. (Mascalu & Halmaghi, 2015). Organizational culture is a kind of organizational change since any transformation amounts to a reevaluation of basic assumptions that employees or the organization have assumed (Muscalu & Halmaghi, 2015). Additionally organizational culture is an interface between employees and change while being able to convert one by one into a barrier or facilitators of the change (Muscalu & Halmaghi, 2015). Edgar Schein (2010) describes organizational culture as a set of assumptions and beliefs that shape how people habitually relate to one another, their tasks, and the broader environment. These assumptions are mostly tacit and taken for granted.
 The current research related to culture is provides valuable information about the important role it has in the success or failure of an organization, the ability to attract and retain top-level talent, and how it affects employee behaviors, performance, and morale. Culture must be strongly linked to vision, values, and strategy of the company and specific actions need to be taken to build the desired culture and align organizational systems and practices with it during periods of organizational change. Organizational cultures can be resistant to needed change and fragile and altered by changes in leadership or major events. When the culture of the organization is not strong employees will be less likely to buy into the changes being implemented, lack of employee buy-in will cause the organizational change to be stonewalled increasing its likelihood of failure. Therefore, before any organizational change occurs Upper-Level Management should focus on developing a strong organizational culture. This requires open, frequent, and multi-dimensional communication, involving meetings, emails, the company website, videos, blogs, tweets, Facebook, and a variety of other methods to keep employees, customers and suppliers well informed. This communication should also come from all directions and the organization should increase its culture inquiries, which involves understanding if the culture is helping or hindering the organization’s ability to achieve its strategic goals and to identify what is important to those who are vital to the organization. Without a strong culture that embodies communication, the likelihood of organizational change failure increases because employees do not feel empowered to make decisions, they will not contribute to the change processes, or be creative in their jobs. When employees feel empowered they are more likely to become change agents, these individuals help to present different ways of coping with the chaos caused by the change processes (Horng, Hu, Hong, Lin, 2011)
 Huber & Lewis, 2010; Ehrhart et. al., 2014 ( organizational climate and culture); Rollins & Roberts, 1998 (work culture, performance, and business success); Denison, 1997 ( corporate culture and organizational effectiveness); Kaplan & Robert, 2001 (strategy focused organization); Schein, 2010 ( organizational culture and leadership)

Question 53

o Customer and employee satisfaction

Answer 53

 Change can lead to restructuring which can lead to improve processes and strategies to better service customers. Improved customer service starts with org change that supports employees who direct interact with customers. employees who have higher levels of satisfaction, commitment, and have higher levels of POS will perform their job task and responsibilities better than those employees who do not believe the org change will benefit them or will be successful.
 Include how to make org change successful at each step to get employee buy in and the fact that there needs to be support from the top down.
 Employees need to feel a part of the change and that they are valued during the change process. If not they will resist the change and will try to damage the change efforts. Getting employees to buy in creates change agents who can facilitate the change process regardless of it is continuous or the Lewin’s model of unfreezing, change, refreezing.

Question 54

• How to implement organizational change (who should be involved)

Answer 54

[Techniques for implementing organizational change (impact and causes of success/failure= When techniques are implemented they can lead to success and when they are not it can lead to failure or organizational change.]
 Organizational and strategic changes often require employees to modify their behavior in ways that conflict with traditional ‘‘ways of doing things around here’’ — or, in other words, with the culture of the organization. (Canato & Ravasi, 2015). In order for change to be successfully implemented breakdowns in the implementation must be avoided. Breakdowns are defined as perceived discrepancies or gaps between the change process in an organization and an individual’s mental model of how the change process should unfold (Van de Ven & Kangyoung Sun, 2011). In order for these breakdowns to be addressed to prevent from derailing the change program, change agents must be designated at each step. However, even before employees can become change agents. Upper-level management must be involved at the onset of change, negative and positive. When leadership is involved with the implementation of change, employees will likely have more buy-in to the change and a positive perception of change will be more likely to implement the change and motivate their colleagues to do the same. However, if employees do not believe in the change or support through the change process the change may be rejected, and organizational members may initiate negative reactions such as sabotage, absenteeism, and output restrictions (Bouckenooghe, Devos, & Van den Broeck, 2009).
 Now that we know the key players of who should be involved with organizational change we can discuss some general steps that can be taken to implement change. The first is that the business problem needs to be clearly identified and that this should be a cross-functional/departmental task. When organizations operate in silos it will be harder for change to be successfully implemented because certain organizational departments are excluded from the process making integration more difficult in the long run. The second step involves developing a shared vision for the organization and develop cohesion to help change and new vision process forward. Without a clear vision, employees and other key members of the organization’s network will be left to interpret the meaning of the change and how they do or do not fit into the new organization. Therefore, it is critical that managers, directors, and leaders at all organizational levels ensure that employees feel valued, their roles and responsibilities are clear throughout the change process, and that communication is transparent so that all employees feel included in the transformation of the organization. The next step involves developing formal policies, systems, and structures to help support the change. This will provide employees with clear guidelines to what is appropriate and what is not as it relates to the organizational change. Lastly, the organization will need to monitor and adjust strategies in response to problems and concerns that will arise throughout the change implementation process. Ensuring that monitoring happens allows for real-time adjustments to be made that allow the organization to accommodate feedback from its network. This ensures that the change will not fail and that benefits that didn’t exist within the organization will exist and thrive after the change is implemented. These steps provide a way to impose change without forcing it, which can allow employees to see that the change will lead to a more effective organization.
 Beer, Eisenstat, & Spector, 1990 (why change programs don’t produce change); Fernandez & Rainey 2006 (managing successful OC in public sector); Reichers, Wanous, & Austin, 1997 (Understanding and managing OC); Goodstein, & Burke, 1991(creating successful OC)

Question 55

o Effects of organizational change on employees

Answer 55

 Organizational changes are usually considered to be associated with the experience of stressful work conditions, uncertainty, anxiety, and increased sick leave (Kivima¨ki, Vahtera, & Thomson, 1997; Sverke, Hellgren, & Na¨swall, 2002; Vahtera et al., 1997, 2004). Since work is seen as a central part of one’s life and is associated with economic, social, and personal satisfaction (Sverke et al., 2002), it may be assumed that job insecurity in times of organizational change can be viewed as a critical life event (Nerina, Deborah, Jimmieson, & Callan, 2004) that can evoke stress reactions for the individual because of anxiety regarding future employment and insufficient work satisfaction. Hartley, Jacobson, Klandermans, and van Vuuren (1991) have suggested that prolonged feelings of job insecurity are closely connected to stress: Job insecurity can be one of the more important stressors in employment situations. Furthermore, Lazarus and Folkman (1984) pointed out that job insecurity is a source of negative stress, which has both immediate and long-term consequences. Immediate stress reactions for the individual are related to attitudes such as job satisfaction and job involvement. It has been found that employees who feel insecure about future employment are more dissatisfied with their job compared with those who feel more secure about their future (Ashford, Lee, & Bobko, 1989; De Cuyper & De Witte, 2007). In a long-term perspective involving prolonged uncertainty with feelings of frustration and limited useful coping strategies (Lazarus & Folkman, 1984), job insecurity has been found to be associated with lower commitment and performance (De Cuyper & De Witte, 2007), and to have a varying negative impact on both physical and mental health (Sverke et al., 2002). Gallup Poll data shows that in the United States only 29 percent of employees are energized and committed to work (engaged). Fifty-four percent of the workforce is relatively ambivalent about giving forth much effort. They basically do the minimal requirements of their job. The remaining 17 percent of employees are disengaged and could be actively working against the organization in their work performance and interactions with customers. According to the Gallup study of a large United States retail bank, the importance of employee engagement in building customer engagement is clear and essential to the organization’s sustainability (Thompson & Mathys, 2013). This data shows that on average employees are not engaged and negative feelings to change can increase employee lack of energy towards their jobs and the organization. This lack of job security and commitment not only has a negative effect on the employee which manifest as stress but can also impact the relationships that employees and ultimately the organization has with customers. When employees cannot meet the needs of the customer, the organization can be faced with a decline in loyal customers, which could lead to negative financial performance. Therefore it is important for organizations to establish leadership, encourage employees’ to participate in decision making, develop an effective implementation of the changes, establish goal clarity, and provide services for to help employees cope with changes. These factors have been positively associated with organizational and individual well-being (Anderze´n & Arnetz, 2005; Arnetz, 2005; Svensen, Neset, & Eriksen, 2007).

Question 56

o Role of upper level management in organizational change

Answer 56

 When an organizational change occurs employees can have positive and negative reactions related to the change. If organizational members are not ready, the change may be rejected, and organizational members may initiate negative reactions such as sabotage, absenteeism, and output restrictions (Bouckenooghe, Devos, & Van den Broeck, 2009). Additionally, employee’s attitudes towards an occurring or pending change can impact morale, productivity, and turnover intentions (Iacovini, 1993; McManus et al., 1995). To prevent negative outcomes related to change, managers, leaders, and organizational development professionals must understand how to create readiness for change programs and initiatives that will help aid employees in being motivated and prepared for change (Madsen, Miller, & John, 2005). Upper-level management must also be active in all stages of the change implementation for employees to have buy-in and belief that the organizational change will be successful because management believes in that the change will be beneficial. Changes within an organization can result in increased feelings of anxiety, negative emotions, uncertainty, and ambiguity among employees (Bordia, Hobman, Jones, Gallois, & Callan, 2004; Kiefer, 2005), which are indicators of an individual’s unwillingness to support changes (Applebaum & Batt, 1993; Judson, 1991).
 When organizational change is implemented it is important to assess employee’s perceived organizational readiness, which refers to organizational members’ change commitment and change efficacy to implement organizational change (Weiner, Amick, Lee, 2008; Weiner, Lewis, Linnan, 2009). Additionally, it is the organizational members’ shared resolve to pursue the courses of action involved in change implementation that makes the change successful (Bandura, 1997). With high levels of organizational commitment present, it could lead to positive employee reactions to change. For example, Herscovitch and Meyer (2002) observe that organizational members can commit to implementing an organizational change because they want to or value the change, because they have to and have little choice, or because they ought to and they feel obliged. Commitment based on ‘want to’ motives reflects the highest level of commitment to implement organizational change (Weiner, 2009). Therefore, in order for organizations to ensure change is successful employees must feel openness, commitment, and motivated to change (Armenakis, Harris, & Mossholder, 1993; Backer, 1995; Bernerth, 2004; Eby, Adams, Russell, & Gaby, 2000).
 Another result of the organizational change that can have a positive and negative impact involves how comfortable employees feel with using their voice. By using their voice this entails speaking up when an employee sees something that can be improved or when employees see unethical behavior occurring. When change is implemented employees often feel apprehensive about voicing concerns related to the change. For example, change can cause employees to become more reluctant to voice substantive and relevant ideas and questions at work, which is related to the widespread and frequent feelings attributed to employees’ concerns about personal consequences (e.g., Ashford, Rothbard, Piderit, & Dutton, 1998; Edmondson, 2003; Milliken et al., 2003; Pinder & Harlos, 2001; Withey & Cooper, 1989).
 When lines of communication are opened and encouraged, organizational change can have a positive impact on employees speaking up. By speaking up to those who occupy positions that are hierarchically higher than their own, employees can help stop illegal and immoral behavior, address mistreatment or injustice, and bring problems and opportunities for improvement to the attention of those who can authorize action. Employees of all types and levels confront problems and formulate ideas when carrying out day-to-day activities in organizations; this is the nature of work in a dynamic environment. Yet, even when they believe they have something useful to say, people often choose silence over speaking up (Milliken, Morrison, & Hewlin, 2003; Ryan & Oestrich, 1998). Whether seen as primarily rational and calculative or as fear-driven and spontaneous, the belief that voice is risky has been described as a general expectation that speaking up will have undesired outcomes, such as harm to one’s reputation or image, reduced self-esteem or emotional well-being, or negative work evaluations and reduced opportunities for promotion (e.g., Ashford et al., 1998; Milliken et al., 2003). Therefore, upward communication is vital to the success of contemporary organizations and critical for organizational change as leadership seeks to make improvements to the change implementation strategy.

Question 57

o Stress and organizational change

Answer 57

 Stress is a nonspecifically induced psychological state of an individual that develops because the individual is with situations that “tax or exceed available resources (internal and external) (Lazarus & Folkman 1984)
 Stress is negatively related to job satisfaction, organizational commitment and performance and positively related to turnover (Kinicki, McKee & Wade, 1996)
 Organizational change: M&As, retrenchment and downsizing will create uncertainty, job anxiety and higher stress (Tosi, 1971)
 Organizational changes are usually considered to be associated with the experience of stressful work conditions, uncertainty, anxiety, and increased sick leave (Kivima¨ki, Vahtera, & Thomson, 1997; Sverke, Hellgren, & Na¨swall, 2002; Vahtera et al., 1997, 2004). Since work is seen as a central part of one’s life and is associated with economic, social, and personal satisfaction (Sverke et al., 2002), it may be assumed that job insecurity in times of organizational change can be viewed as a critical life event (Nerina, Deborah, Jimmieson, & Callan, 2004) that can evoke stress reactions for the individual because of anxiety regarding future employment and insufficient work satisfaction. Hartley, Jacobson, Klandermans, and van Vuuren (1991) have suggested that prolonged feelings of job insecurity are closely connected to stress: Job insecurity can be one of the more important stressors in employment situations. Furthermore, Lazarus and Folkman (1984) pointed out that job insecurity is a source of negative stress, which has both immediate and long-term consequences. Immediate stress reactions for the individual are related to attitudes such as job satisfaction and job involvement. It has been found that employees who feel insecure about future employment are more dissatisfied with their job compared with those who feel more secure about their future (Ashford, Lee, & Bobko, 1989; De Cuyper & De Witte, 2007). In a long-term perspective involving prolonged uncertainty with feelings of frustration and limited useful coping strategies (Lazarus & Folkman, 1984), job insecurity has been found to be associated with lower commitment and performance (De Cuyper & De Witte, 2007), and to have a varying negative impact on both physical and mental health (Sverke et al., 2002). Gallup Poll data shows that in the United States only 29 percent of employees are energized and committed to work (engaged). Fifty-four percent of the workforce is relatively ambivalent about giving forth much effort. They basically do the minimal requirements of their job. The remaining 17 percent of employees are disengaged and could be actively working against the organization in their work performance and interactions with customers. According to the Gallup study of a large United States retail bank, the importance of employee engagement in building customer engagement is clear and essential to the organization’s sustainability (Thompson & Mathys, 2013). This data shows that on average employees are not engaged and negative feelings to change can increase employee lack of energy towards their jobs and the organization. This lack of job security and commitment not only has a negative effect on the employee which manifest as stress but can also impact the relationships that employees and ultimately the organization has with customers. When employees cannot meet the needs of the customer, the organization can be faced with a decline in loyal customers, which could lead to negative financial performance. Therefore it is important for organizations to establish leadership, encourage employees’ to participate in decision making, develop an effective implementation of the changes, establish goal clarity, and provide services for to help employees cope with changes. These factors have been positively associated with organizational and individual well-being (Anderze´n & Arnetz, 2005; Arnetz, 2005; Svensen, Neset, & Eriksen, 2007).

Question 58

o Leadership style and organizational change (effects on change)

Answer 58

 As organizational life becomes more dynamic, uncertain, and unpredictable, it has become increasingly difficult for leaders to succeed by merely developing and presenting their visions top-down to employees (Griffin, Neal, & Parker, 2007). More than ever before, leaders depend on employees to proactively advance bottom-up change by voicing constructive ideas (Van Dyne & LePine, 1998), taking charge to improve work methods (Morrison & Phelps, 1999), and engaging in upward influence (Dutton, Ashford, O’Neill, & Lawrence, 2001). However, employees still need an effective leader for change to be successfully implemented. Transformational leaders have been characterized by four separate components or characteristics denoted as the 4 I’s of transformational leadership (Avolio, Waldman, and Yammarino (1991). These four factors include idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration. Transformational leaders integrate creative insight, persistence, energy, intuition, and sensitivity to the needs of others to “forge the strategy culture alloy” for their organizations (Bass & Avolio, 1993). In contrast, transactional leaders are characterized by contingent reward and management-by-exception styles of leadership (Bass & Avolio, 1993). Essentially, transactional leaders develop exchanges or agreements with their followers, pointing out what the followers will receive if they do something right as well as wrong. They work within the existing culture, framing their decisions and actions based on the operative norms and procedures characterizing their respective organizations (Bass & Avolio, 1993). These two different leadership styles can influence how employees respond to change. For example, under transformational leadership employees may have feelings that make them believe that they are empowered to make decisions, contribute to the change processes, or be creative in their jobs. This allows employees to have more commitment to the organization and when employees feel empowered and committed, they are more likely to become change agents, these individuals help to present different ways of coping with the chaos caused by the change processes (Horng, Hu, Hong, Lin, 2011). Whereas transactional leadership could potentially lead to employees feeling insecure about their job roles and responsibilities if they cannot quickly meet the expectations of the leader once the change has been implemented. These feelings of job insecurities can lead employees to have negative attitudes towards the change, which could impact morale, productivity, and turnover intentions (Iacovini, 1993; McManus et al., 1995). Although transactional leadership rewards good and bad practices and behaviors, when change is implemented employees believe that their negative behaviors or performance will be highlighted and could be the cause for their anxiety related to the job (Nerina, Deborah, Jimmieson, & Callan, 2004). Additionally, Transactional leaders may be less likely to implement change that cause the culture to change because that is out of the scope of their leadership style which could result in unsuccessful change implementation. Since leadership has been identified by many researchers as being one of the most, if not the most, important (Amabile, 1998; Jung, 2001; Mumford & Gustafson, 1988) factor in organizational change. It is important for leaders to understand what their style of leadership and how that particular leadership style can be utilized to evoke positive outcomes from the implemented organizational change.
 Eisenbach, 1999 (Transformational leadership in the context of OC);

Question 59

o Types of organizational change and how they come about

Answer 59

 The rising rate of complexity associated with increasing volatility, uncertainty and interconnectedness is a big challenge facing organizational leaders around the globe (Berman, 2010). In this environment, the world is operating in fundamentally different ways, which causes organizations to react and incorporate new business strategies (Uhl-Bien & Arena, 2017). One type of change that most organizations are faced with is the changes in consumer preferences. In the last decade, consumers have desired companies to be more transparent about what ingredients they use and consumers are pickier and exercise more discretion about what they consume (Carden et. al., 2017). For companies like McDonald’s, Wendy’s, and Burger King it is becoming increasingly important to consider their external environment. The external environment are factors that impact companies uniquely, such as unanticipated crises and those events that impact the industry that the firm operates in (Dean, 1992). Currently, the fast food industry is losing customers to the fast, casual segment of the restaurant industry where consumers can find fast food, though not as fast; that is affordable, but not quite as lower priced, and of higher food quality (Carden et. al., 2017). With these seemingly small shifts in consumer taste, McDonald’s had to develop radical strategies that allowed the organization to change as consumer preferences changed and to quickly accommodate those changes in order to maintain customers. McDonald’s approach included a marketing strategy that promoted healthy food choices, included calorie counts on its menu displays and started offering low-fat and grilled menu options. This shift in menu allowed McDonald’s to adjust to external changes by implementing internal organizational changes by offering a good product mix that focuses on the choices the consumer would prefer (Carden et. al., 2017; Boin & Eeten, 2013), thus implementing a consumer-focused change implementation strategy. The external changes prompted internal changes which requested employees and franchise owners to move quickly to make changes to the menu and design of all McDonald’s locations (Morales-Raya & Bansel, 2015). This required support from the organization as well as formalized policies so that within a certain time frame all locations would offer a standardized menu.
 Isabella, 1990 (interpretations as change unfolds)
 When a new CEO takes over an organization there are likely to be immediate and progressive changes that take place throughout that CEO’s tenure. Often these changes can be beneficial to the organization and in other instances, it could have a negative effect that leads to the firing of the CEO by the Board of Directors, decreases in financial performance, and increases in employee turnover. One of the major changes that come with the hiring of a new CEO is a change in the organizational culture. A CEO can deliberately begin to design the organization around his/her philosophy of creating a culture that promotes what they believe in like employee happiness, exceptional customer service, and high performance as in the case of Zappos (Warrick et. al., 2016). Organizational cultures can be resistant to needed change and at the same time can be fragile and altered almost overnight by changes in leadership or major events. In order to create a new organizational culture that results in a great place to work, exceptional customer service, and impressive organizational performance requires specific drivers. These drivers include committed leaders, practiced core values, a customer-focused strategy, management practices that are aligned with core values and lastly HR practices that are aligned with the core values as well. With these drivers consistently in play throughout the organization and in conjunction with open communication channels, the change will have a greater chance of being successful.
 Greening & Johnson, 1996 (CEO turnover and crisis); Ehrhart et. al., 2014 ( organizational climate and culture); Rollins & Roberts, 1998 (work culture, performance, and business success); Denison, 1997 ( corporate culture and organizational effectiveness); Kaplan & Robert, 2001 (strategy focused organization); Schein, 2010 ( organizational culture and leadership); Barney, 1986 ( OC as a source of sustained competitive advantage)

Question 60

o Barriers of organizational change (strategies to help improve change)

Answer 60

 Organizational change is defined as a difference in form, quality, or state over time in an organizational entity (Van de Ven & Poole, 1995, p.512). When organizational change is presented in a company it is important for the leaders to understand that change takes time and will often require a strategy-oriented approach. One of the best methods to improve the implementation of change stems from advances made by Kaplan and Norton (2001). Leaders must first articulate the company’s new strategy in operational terms. Next, actions are taken to allow employees to implement the strategy and create a mindset where they see the strategy as part of their jobs. Finally, the organization’s leadership must seek to make changes necessary to reinforce the strategy. We know that organizational change is an ongoing and never-ending process within an organization. When changes are being implemented there are often breakdowns that occur when organizations do not change in a manner that is consistent with an employee’s conceptual model (Van de Ven & Kangyoung Sun, 2011). When this happens there are two strategies that can be used by change agents to capitalize on the change. The first is an action strategy, which focuses on correcting the people or processes in the organization that prevent the change model from unfolding as expected. When using this strategy the change agent might explain to participants the logic and reasons for the planned change. As a problem solver, a change agent attempts to intervene in and control a change initiative by diagnosing and correcting difficulties that prevent the change process from unfolding as the change agent thinks it should. This strategy reflects a mainstream view in the literature that change management largely entails an action-oriented problem-solving approach (Burke, Lake, & Paine, 2009). The second strategy, reflection, focuses on revising the employee’s mental model to one that better fits the process of change unfolding in the organization. For example, given the resistance to the planned change, the change agent might adopt a dialectical model of change that promotes constructive conflict and debate among participants with opposing plans. The reflection strategy emphasizes how change agents make sense of and socially construct understandings of the changes they experience in organizations (Weick, 2011). Diagnosing the breakdowns and knowing what strategy to follow in directing organizational change is the key to determining which basic strategy to utilize. For most organizations, a hybrid approach will probably be the most beneficial as one single strategy may not be effective in aiding in the successful implementation of change programs and initiatives.
 Ford et. al., 2008 (resistance to change); Nutt, 2002 (why decisions fail); Quinn & Weick 1999 (organizational change and development)

Question 61

o Organizational theory development (relate to the process of publishing an article in academia) (see comps question 2016 about this)

Answer 61

 Organizational Development (OD) is a field of research, theory, and practice dedicated to expanding the knowledge and effectiveness of people to accomplish more successful organizational change and performance. (UPenn, 2018)
 OD is a process of continuous diagnosis, action planning, implementation and evaluation, with the goal of transferring knowledge and skills to organizations to improve their capacity for solving problems and managing future change. (UPenn, 2018)
 5 Steps
• Anticipate a Need for Change
o Organization must anticipate the need for change (Brown, 2010).
• Develop the Practitioner-Client Relationship
• The Diagnostic Phase
o Gather data about the system. This provides a better understanding of the client system problems.
• Action, Plans, Strategies and Techniques
o The problem areas and casual relations are identified. As such, a series of interventions, activities and programs aimed at resolving the problems and increasing effectiveness follow (Brown, 2010, p.16). The programs will apply relevant OD techniques such as total quality management (TQM) towards achieving necessitated change.
• Self-Renewal, Monitor, and Stabilize
o The next step is to monitor the results and stabilize the desired changes. Brown (2010) elaborates that, in this stage the organization assesses the effectiveness of the change strategies in aiming the stated objective
 History and Application of Organizational Development Theory
• OD emerged out of human relations studies from the 1930s where psychologists realized that organizational structures and processes influence worker behavior and motivation
• Lewin’s work in the 1940s and 1950s also helped show that feedback was a valuable tool in addressing social processes.
• More recently, work on OD has expanded to focus on aligning organizations with their rapidly changing and complex environments through organizational learning, knowledge management and transformation of organizational norms and values.
 Key Concepts of Organizational Development Theory
• Organizational Climate
o Defined as the mood or unique “personality” of an organization.
o Attitudes and beliefs about organizational practices create organizational climate and influence members’ collective behavior.
o Climate features and characteristics may be associated with employee satisfaction, stress, service quality and outcomes and successful implementation of new programs. Climate features and characteristics include:
o Leadership, openness of communication, participative management, role clarity, and conflict resolution, leader support and leader control.
• Organizational Culture
o Deeply seated norms, values and behaviors that members share.
o The five basic elements of culture in organizations include:
 Assumptions
 Values
 Behavioral norms
 Behavioral patterns
 Artifacts
o The subjective features (assumptions, values and norms) reflect members’ unconscious thoughts and interpretations of their organizations.
o The subjective features shape the behaviors and artifacts take on within organizations
• Organizational Strategies
o A common OD approach used to help organizations negotiate change, i.e. action research, consists of four steps.
 Diagnosis
• Helps organization identify problems that may interfere with its effectiveness and assess the underlying causes
• Usually done by OD enlisting the help of an outside specialist to help identify problems by examining its mission, goals, policies, structures and technologies; climate and culture; environmental factors; desired outcomes and readiness to take action.
• Usually done through key informant interviews or formal surveys of all members.
 Action planning
• Strategic interventions for addressing diagnosed problems are developed.
• The organization is engaged in an action planning process to assess the feasibility of implementing different change strategies that lead to action.
 Intervention
• Change steps are specified and sequenced, progress monitored, and stakeholder commitment is cultivated.
 Evaluation
• Assess the planned change efforts by tracking the organization’s progress in implementing the change and by documenting its impact on the organization.

Question 62

o Healthcare reform and effects on organizations that lead to organizational change

Answer 62

 Pros
• Better coverage and universal healthcare could lead to increases in employee satisfaction and well-being; which could also lead to improved work performance and org commitment
• Affordable Care Act made it more accessible to those who did not have coverage by employers.
• Reform in the sense that it will reduce the company’s responsibility for providing healthcare will be beneficial in the aspect that it could increase tax cuts and provide more profits by eliminating expenses related to employee wages and benefits
• Small business will be able to generate more profit because they will not have the cost of healthcare. However a mandated healthcare policy could lead to the firing or for small, educed hiring for small, medium, and large firms
 Cons
• Could lead to companies shift org structure to reduce number of full-time employees to not have to pay for benefits
• Companies less likely to hire older or at risk employees to prevent having to provide them with help care (Card et al, 2008)
• Many analysts have argued that unequal insurance coverage contributes to disparities in health care utilization and health outcomes across socioeconomic groups (Card et al, 2008)
• The onset of Medicare eligibility at age 65 leads to sharp changes in the health insurance coverage of the U.S. population. These changes lead to increases in the use of medical services, with a pattern of gains across socioeconomic groups that varies by type of service. While routine doctor visits increase more for groups that previously lacked insurance, hospital admissions for relatively expensive procedures like bypass surgery and joint replacement increase more for previously insured groups that are more likely to have supplementary coverage after 65, reflecting the relative generosity of their combined insurance package under Medicare. (Card et al, 2008)
• Reduced benefits for employees like sick leave, and other fringe benefits
• Cost will be passed on to employees in the firm of higher premiums and deductibles
o Five consecutive years of double-digit premium increases have hit the business community hard, especially smaller firms.
o
 Hansson et all 2008 (effects of org change on healthcare employees)
 Heaton 2012 ( workers comp and the increase in potential claims related to a reform)
 Bagley, 2017 (tax cuts and healthcare)
 RAND 2017 (replace or repeal ACA)