MAN4723 Strategic Management

golden parachute

"if you terminate me, you owe me a large lump sum" -puts a constraint on firing someone who isnt a good fit -bad for shareholders -might encourage managers to do bare minimum

The two sources of returns for stockholders

(a) capital appreciation in the value of a company's shares and (b) dividend payments.

4 Ways to Grow profits

- Participating in a market that's growing -Taking market share from competitors -Consolidating the industry through horizontal integration -Development of new markets through international expansion, vertical integration, or diversification

Roots of Unethical Behavior

- Personal Ethics - Decision-Making Processes - Organization Culture - Unrealistic Performance Expectations - Leadership - Societal Culture

Do you think the legally binding agreement signed by H&M, Zara, Tesco, and others will make a difference? Does it go far enough? What else might be done?

- it should make some difference. If several purchasers are backing out without key changes, it will likely affect the behavior of the textile providers -Put auditing processes in place. Make sure companies are meeting conditions so workers are safe. Companies that purchase textiles are concerned about stakeholders even if they're not direct employees - systematic monitoring in place. Someone thats not subject to corruption -Incentives to counteract cost-cutting. Safety rewards (# of days without fatality)

The return on invested capital (ROIC)

-(profit/capital invested) -net profit (profit after tax) over the capital(sum of money invested in the company: that is, stockholders' equity plus debt owed to creditors) invested in the firm

Laws for Monitoring Agents

-Codetermination law (Mitbestimmungsgesetz) -Securities and Exchange Commission (SEC) -Generally agreed-upon accounting principles (GAAP)

Risk capital

-Equity capital for which there is no guarantee that stockholders will ever recoup their investment or earn a decent return. -capital that cannot be recovered if a company fails and goes bankrupt.

role of business level managers (SBU)

-Head of business units -translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses.

Functional-level managers

-Responsible for specific business functions (human resources, purchasing, product development, customer service, etc.). -Develop functional strategies to fulfill the strategic objectives set by business- and corporate-level general managers. -Provide information that helps formulate realistic and attainable strategies.

Five attributes that many strong and effective leaders exhibit

-Self-awareness—the ability to understand one's own moods, emotions, and drives, as well as their effect on others. • Self-regulation—the ability to control or redirect disruptive impulses or moods, that is, to think before acting. • Motivation—a passion for work that goes beyond money or status and a propensity to pursue goals with energy and persistence. • Empathy—the ability to understand the feelings and viewpoints of subordinates and to take those into account when making decisions. • Social skills—friendliness with a purpose.

profitability

-The return a company makes on the capital invested in the enterprise. -the result of how efficiently and effectively managers use the capital at their disposal to produce goods and services that satisfy customer needs -ROIC

Four main characteristics of well-constructed goals

-They are precise and measurable -They address crucial issues -They are challenging but realistic -They specify a time period in which the goals should be achieved, when that is appropriate.

Criticisms of Formal Planning Models (3)

-Unforeseen circumstances can adversely affect strategic plans -excessive importance is attached to the role of top management while ignoring lower level managers -many successful strategies are a result of serendipity rather than strategic planning

Characteristics of good strategic leaders

-Vision, eloquence, and consistency -Articulation of a business model -Commitment -Being well informed -Willingness to delegate and empower -Astute use of power -Emotional intelligence -Self-awareness, self-regulation, and motivation -Empathy and social skills

What do you think of Walmart approach to this problem? is the company doing enough? What else could it do?

-Walmart didn't join in legally binding pact to improve safety conditions in Bangladesh over hesitation law suits filed in US courts could lead to large damage awards against Walmart. -hope that at a minimum, Walmart sets up a process for properly auditing suppliers

Business-level strategies

-encompass the business's overall competitive theme - the way it positions itself in the marketplace to gain a competitive advantage -the different positioning strategies that can be used in different industry settings (cost leadership, differentiation, focusing on a particular niche or segment of the industry, or some combination of these.)

Internal Analysis

-focuses on reviewing the resources, capabilities, and competencies of a company -identifies strengths and weaknesses

What are the causes of the weak safety record of the Bangladesh garment industry? Do western comps that import garments bear any responsibility for what happened at the Rana Plaza and other workplace accidents?

-incentive to cut corners to reduce costs and gain business -weak regulatory environment and endemic corruption (no safety regulators and if there were, it was corrupt) -Western companies have been participants in this process. many have adjusted as in this case

Role of corporate-level managers

-oversee the development of strategies for the whole organization -defining the goals of the organization -determining what businesses it should be in, -allocating resources among the different businesses, -formulating and implementing strategies that span individual businesses, - providing leadership for the entire organization. -provide a link between the people who oversee the strategic development of a firm and those who own it (the shareholders)

Put ethics and governance into practice

-put in effective controls like auditing and monitoring -use moral courage -give careful considerations to all stakeholders

Economically who benefits when retailers in Europe and us source textiles from low-wage countries like Bangladesh? who might lose? do gains outweigh losses?

-retailers gain from low cost source of apparel -consumers gain form low price clothing -textile companies gain from increased demand from products -employment opportunities that may not exist otherwise. Absent alternatives, low paying job better than none

From an economic perspective, was the shift to a free trade regime in the textile industry good for Bangladesh?

-textile exports more than doubled between 2006 and 2012 (reduction of trade barriers was a contributor) -Labor intensive industry; cost low in Bangladesh -lack of regulations lower costs -critical mass of textile factories and labor -corruption is rampant, causing issues -intense competition between clothing retailers has driven them to look for lower costs

Decentralization

-top-down and bottom-up ideas and solutions -Strike appropriate balance

Four main strategies from SWOT

1. Functional level 2. Business level 3.Global strategies 4. Corporate level

Steps in Stakeholder Impact Analysis

1. Identify stakeholders. 2. Identify stakeholders' interests and concerns. 3. As a result, identify what claims stakeholders are likely to make on the organization. 4. Identify the stakeholders who are most important from the organization's perspective. 5. Identify the resulting strategic challenges.

The Five Steps of the Strategic-Management Process

1. Select the corporate mission, vision and major corporate goals. (objectives) 2. Analyze the organization's external competitive environment to identify opportunities and threats. 3. Analyze the organization's internal operating environment to identify the organization's strengths and weaknesses. 4. Select strategies that build on the organization's strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats. (These strategies should be consistent with the mission and major goals of the organization. They should be congruent and constitute a viable business model. ) 5. Implement the strategies.

What are the three interrelated environments should be examined when undertaking an external analysis?

1. industry environment in which the company operates 2. country or national environment 3. wider socioeconomic or macroenvironment (General)

Two main factors that determine profitability and profit growth in a company

1. its relative success in its industry 2. the overall performance of its industry relative to other industries.

Four main components of a mission statement

1. statement of reason 2. a statement of some desired future state (vision) 3. statement of the key values that the organization is committed to 4. statement of major goals.

A business should be defined by what three dimensions?

1. who is being satisfied (what customer groups) 2. what is being satisfied (what customer needs) 3. how customers' needs are being satisfied (by what skills, knowledge, or distinctive competencies)

escalating commitment

A cognitive bias that occurs when decision makers, having already committed significant resources to a project, commit even more resources after receiving feedback that the project is failing. -irrational response

multidivisional company

A company that competes in several different businesses and has created a separate self-contained division to manage each.

capabilities

A company's skills at coordinating its resources and putting them to productive use.

sustained competitive advantage

A company's strategies enable it to maintain above-average profitability for a number of years

absolute cost advantage

A cost advantage that is enjoyed by incumbents in an industry and that new entrants cannot expect to match.

sector

A group of closely related industries.

industry

A group of companies offering products or services that are close substitutes for each other.

business unit

A self-contained division that provides a product or service for a particular market (for example, finance, purchasing, production, and marketing departments)

strategy

A set of related actions that managers take to increase their company's performance.

information asymmetry

A situation where an agent has more information about resources he or she is managing than the principal has. solutions: monitor, bond, incentivize

greenmail

A source of gaining wealth by corporate raiders who benefit by pushing companies to either change their corporate strategy to one that will benefit stockholders, or by charging a premium for these stocks when the company wants to buy them back.

values

A statement of how employees should conduct themselves and their business to help achieve the company mission.

devil's advocacy

A technique in which one member of a decision-making team identifies all the considerations that might make a proposal unacceptable. -possible perils of recommended courses of action brought into light

on-the-job consumption

A term used by economists to describe the behavior of senior management's use of company funds to acquire perks (such as lavish offices, jets, etc.) that will enhance their status, instead of investing it to increase stockholder returns. Misalignment: Agent and principal interests may differ

Business Ethics

Accepted principles of right or wrong governing the conduct of businesspeople.

support activities

Activities of the value chain that provide inputs that allow the primary activities to take place.

external stakeholders

All other individuals and groups that have some claim on the company. ;comprises customers, suppliers, creditors (including banks and bond- holders), governments, unions, local communities, and the general public.

How did walmart continue to strengthen its competitive advantage over time? What does this teach you about the source of a long term competitive adv?

As it grew larger, it grew purchasing power of the company. It developed an efficient supply chain and was able to purchase in bulk which decreased supplier prices which, in turn allowed them to decrease prices for consumers. They also developed tracking software which allowed them to quickly adjust inventory and reduce overstocking. - it shows us that strats must be compatible and drive profit and growth over time.

Resources

Assets of a company.

Bargaining power of buyers

Bargain down prices or raise costs by demanding better product quality and service -choose sellers and purchase large quantities -supplier industry is dependent on them for a major portion of sales -With low switching costs and ability to purchase an input from several companies at once, buyers can pit companies against each other -threat of entering the industry and producing the product

Empire Building

Buying new businesses to increase the size of the company through diversification -generally drives up salary -"egotism"

golden handcuffs

CEO is handcuffed to firm because firm doesnt want to pay out golden parachute

corruption

Can arise in a business context when managers pay bribes to gain access to lucrative business contracts.

Potential competitors

Companies that are currently not competing in the industry but have the potential to do so.

Switching costs

Costs that consumers must bear to switch from the products offered by one established company to the products offered by a new entrant.

Strategic Leadership

Creating competitive advantage through effective management of the strategy-making process

Corporate-level strategies

Determine: What business or businesses should we be in to maximize profitability and profit growth of the organization, - how should we enter and increase our presence in these businesses to gain a competitive advantage

process innovation

Development of a new process for producing products and delivering them to customers.

product innovation

Development of products that are new to the world or have superior attributes to existing products.

outside directors

Directors who are not full-time employees of the company, needed to provide objectivity to the monitoring and evaluation of processes. -Laws vary by country, but generally have to be "Independent" (free of conflict with CEO or firm)

market segment

Distinct groups of customers within a market that can be differentiated on the basis of their individual attributes and specific demands

exit barriers

Economic, strategic, and emotional factors that prevent companies from leaving an industry

Opportunities

Elements and conditions in a company's environment that allow it to formulate and implement strategies that enable it to become more profitable.

threats

Elements in the external environment that could endanger the integrity and profitability of the company's business.

Absolute cost advantage

Enjoyed by incumbents in an industry and that new entrants cannot expect to match

barriers to imitation

Factors that make it difficult for a competitor to copy a company's distinctive competencies.

Government Regulations

Falling entry barriers due to government regulation results in significant new entry, increase in the intensity of industry competition, and lower industry profit rates

Distinctive competencies

Firm-specific strengths that allow a company to differentiate its products and/or achieve substantially lower costs to achieve a competitive advantage.

scenario planning

Formulating plans that are based upon "what-if" scenarios about the future. -optimistic -pessimistic

financial statements and auditors

Give us the opportunity to check what the firm is doing

What was sam waltons original strategic vision for Wal-Mart? How did this enable the company to gain a competitive advantage?

He found that people living in rural areas would drive up to three hours to go shopping so he wanted to create a general store that was closer and saved people time of commuting. - advantages: creates value by saving people time

outside view

Identification of past successful or failed strategic initiatives to determine whether those initiatives will work for project at hand.

Demand Conditions

Increasing demand moderates competition by providing greater scope for companies to compete for customers

Walmart is encountering limits to growth currently. Why do you think this is the case? what might walmart do to push back these limits?

Limits to growth are due to a saturated market in the U.S. A one-stop shop doesn't always make sense in some areas due to local adaptation and less use of automobiles. They can push back these limits by continuing to focus on being a low-cost leader and offer value with bundles.

functional managers

Managers responsible for supervising a particular function, that is, a task, activity, or operation, such as accounting, marketing, research and development (R&D), information technology, or logistics.

self-dealing

Managers using company funds for their own personal consumption, as done by Enron, for example, in previous years.

General Managers

Managers who bear responsibility for the overall performance of the company or for one of its major self-contained subunits or divisions.

Employee Incentives

Motivate employees to work toward goals central to maximizing long-term profitability -ESOPS- employee stock ownership plan -stock-option grants -bonus pay

intangible resources

Nonphysical entities such as brand names, company reputation, experiential knowledge, and intellectual property, including patents, copyrights, and trademarks.

tangible resources

Physical entities, such as land, buildings, equipment, inventory, and money.

brand loyalty

Preference of consumers for the products of established companies.

Five Forces Analysis

Primary technique for understanding the external environment -Compliments -Entry Barriers -Suppliers -Buyers -Substitutes -Intensity of Rivalry which all lead to -intensity of rivalry

Are entry barriers into the narrow-bodied segment the same as those into the wide-bodied segment? Explain

Probably not. Narrow planes are cheaper to create so barriers to entry are lower. This is why we are seeing several new companies competing with Airbus and Boeing to manufacture narrow planes

Strong complementors

Provide a increased opportunity for creating value

feedback loop

Provides info to the corp. level on the -strat. goals being achieved -degree of comp. adv. being created and sustained

Corporate raiders

Purchase large blocks of shares in companies that appear to be pursuing strategies inconsistent with maximizing stockholder wealth

economies of scale

Reductions in unit costs attributed to a larger output.

noblesse oblige

Responsibility of privileged people to act with generosity and nobility toward those less privileged. (give back to society)

strategy formulation

Selecting strategies based on analysis of an organization's external and internal environment.

Strike Price

Stock's trading price when the option was originally granted

Internal Stakeholders

Stockholders and employees, including executive officers, other managers, and board members.

Bargaining power of suppliers

Suppliers' ability to raise input prices or industry costs through various means -there are no substitutes -not dependent on one industry -companies have high switching costs if they switch suppliers -threat of entering customers industry -Knowledge that companies cant enter the suppliers industry

cognitive biases

Systematic errors in human decision making that arise from the way people process information.

absorptive capacity

The ability of an enterprise to identify, value, assimilate, and use new knowledge.

competitive advantage

The achieved advantage over rivals when a company's profitability is greater than the average profitability of firms in its industry

Explain why the wide-bodied segment of the large commercial jet aircraft industry can only profitably support two players at present. What are the implications of your answer for barriers to entry into this segment?

The airline has high development costs for wide-bodied planes, and companies need to create economies of scale to cover those costs. Thus, startup costs create a barrier to entry for new companies in the airline industry

vision

The articulation of a company's desired achievements or future state.

SWOT analysis

The comparison of strengths, weaknesses, opportunities, and threats. - identifies the strategies to exploit external opportunities, counter threats, build on and protect company strengths, and eradicate weaknesses.

dialectic inquiry

The generation of a plan (a thesis) and a counterplan (an antithesis) that reflect plausible but conflicting courses of action. -promotes strategic thinking

value chain

The idea that a company is a chain of activities that transforms inputs into outputs that customers value.

employee productivity

The output produced per employee.

mission

The purpose of the company, or a statement of what the company strives to do.

stock options

The right to purchase company stock at a predetermined price at some point in the future, usually within 10 years of the grant date. -growing in popularity - motivate managers to adopt strats that increase the share price of the company -little downside to manager if risk does not pan out -increasingly controversial

Walmart encountered limits to growth. How did it overcome these limits? Explain how the expansion moves that walmart made in the 1990s made economic sense and helped to create value for the companys shareholders.

They started to diversify by moving into the grocery business and opening supercenters that sold gen merch and grocery under same roof, saving consumers more time with a one-stop shop. They also broadened into the warehouse club business by establishing Sams Club.

customer response time

Time that it takes for a good to be delivered or a service to be performed.

reasoning by analogy

Use of simple analogies to make sense out of complex problems. -that the analogy may not be valid.

Governance Mechanisms

Used by principals to: Align incentives with the agents Monitor and control agents Guard against asymmetry and misalignment of interests Types: Board of directors (monitor) Stock-based compensation (incentive) Financial statements (fact Check) remove Takeover constraint

How much of walmarts strategy do you think was planned at the outset, and how much evolved over time in response to circumstances? What does this suggest to you about the nature of strat development?

Walmart started with a low cost strategy by bundling things together and keeping prices low for consumers. As it evolved over time, its important the they monitor their environment and can adjust their strats accordingly.

Cost Conditions

When fixed costs are high, profitability is highly leveraged to sales volume

What do you think about Walt Disneys decision not to purchase merch from Bangladesh? IS this an appropriate way of dealing with the problem?

Workers and factories were impacted

code of ethics

a formal statement of ethical principles and rules of conduct

Agency Theory

a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored

Emotional intelligence

a term that Daniel Goleman coined to describe a bundle of psychological attributes that many strong and effective leaders exhibit

primary activities

activities related to the design, creation, and delivery of the product, its marketing, and its support and after-sales service.

Global strategies

address how to expand operations outside the home country (or region) to grow and prosper in a world where competitive advantage is determined at a global level

stakeholders

are individuals or groups with an interest, claim, or stake in the company, in what it does, and in how well it performs.

availability error

arises from our predisposition to estimate the probability of an outcome based on how easy the outcome is to imagine.

risk capital

capital that cannot be recovered if a company fails and goes bankrupt

Complimentors

companies that sell products that add value to other products

anticompetitive behavior

covers a range of actions aimed at harming actual or potential competitors, most often by using monopoly power, and thereby enhancing the long-run prospects of the firm.

Functional-level strategies

directed at improving the effectiveness of operations within a company, such as manufacturing, marketing, materials management, product development, and customer service.

Stakeholder Impact Analysis

enables a company to identify the stakeholders most critical to its survival and to make sure that the satisfaction of their needs is paramount.

Behaving ethically

ensure people consider the ethical dimension of business decisions -use ethics officers -put strong governance processes in place -act with moral courage

strategy implementation

executing the plan on all levels -designing best org. structure, culture, and control systems to put plan into action

strategic control system

formal target-setting, measurement, and feedback systems -establish standards and targets to measure performance (control mechanism) -create sys for measuring/monitoring performance (accounting statements) -compare actual performance against the established targets -evaluate and take corrective action -systemize processes and create culture

To boost profitability and grow profits over time, managers must

formulate and implement strategies that give their company a competitive advantage over rivals

business model

how strategies should work together as a whole to enable the company to achieve competitive advantage.

What is the essential purpose of the external analysis?

identify strategic opportunities and threats within the organization's operating environment that will affect how it pursues its mission

substandard working conditions

managers underinvest in working conditions, or pay employees below-market rates, in order to reduce their production costs

prior hypothesis bias

occurs when decision makers who have strong prior beliefs tend to make decisions on the basis of these beliefs, even when presented with evidence that their beliefs are wrong.

information manipulation

occurs when managers use their control over corporate data to distort or hide information in order to enhance their own financial situation or the competitive position of the firm, such as HP accused Autonomy of in the chapter-opening case.

The strategic plans generated by the planning process generally project

period of 1 to 5 years, and the plan is updated, or rolled forward, every year.

the principal drivers of shareholder value are

profitability and profit growth

shareholder value

returns that shareholders earn from purchasing shares in a company

Strategic Business Unit (SBU)

self-contained division that provides a product or service for a particular market

inside directors

senior employees of the company, such as the CEO

representativeness

tendency to generalize from a small sample or even a single vivid anecdote. -violates the statistical law of large numbers

illusion of control

tendency to overestimate one's ability to control events. -General or top managers are more prone to this

How was Wal-Mart able to increase its net profit from $2.68 billion to $15.7 billion?

the company (a) took market share from rivals, (b) established stores in 27 foreign nations that collectively generated $125 billion in sales by 2012, and (c) entered the grocery business.

Personal Ethics

the generally accepted principles of right and wrong governing the conduct of individuals

Profit Growth

the increase in net profit over time measures of effectiveness: -selling products in rapidly growing markets -gaining market share from rivals -consolidating sales (horizontal integration) -developing new markets (international, vertical int., diversity)

Ethics

the principles of right and wrong that guide an individual in making decisions

takeover constraint

the risk of being acquired by another company

strategy implementation

the task of putting strategies into action, which includes designing, delivering, and supporting products; improving the efficiency and effectiveness of operations; and designing a company's organizational structure, control systems, and culture.

Threat of Substitutes

those of different businesses that satisfy similar customer needs -limit the price that companies in an industry can charge for their product

The goal of a SWOT analysis

to create, affirm, or fine-tune a company-specific business model that will best align, fit, or match a company's resources and capabilities to the demands of the environment in which it operates

opportunistic exploitation

unethical behavior sometimes used by managers to unilaterally rewrite the terms of a contract with suppliers, buyers, or complement providers in a way that favors to the firm

environmental degradation

when a company's actions directly or indirectly result in pollution or other forms of environmental harm.

ethical dilemmas

which are situations where there is no agreement over exactly what the accepted principles of right and wrong are, or where none of the available alternatives seems ethically acceptable.

A business model encompasses the totality of how a company will:

• Select, acquire, and keep its customers. • Define and differentiate its product offerings. • Create value for its customers. • Acquire and keep customers. • Produce goods or services. • Lower costs. • Deliver goods and services to the market. • Organize activities within the company. • Configure its resources. • Achieve and sustain a high level of profitability. • Grow the business over time.