MGMT 449 midterm study

The balanced scorecards four perspectives -How do customers see use? -What must we excel at? -Can we continue to improve and create value? -How to we look to shareholders?

-(Customers perspective) -(Internal business perspective) -(Innovation and learning perspective) -(Financial perspective)

Reputation examples

-Brand name -Reputation with customers for quality and reliability -Reputation with suppliers for fairness, non-zero-sum relationships

Strategy implementation- (4)

-Fostering corporate entrepreneurship -Strategic leadership, ethics-change -Creating effective organizational designs -Strategic control-corporate governance

Value chain: Supportive activities (4)

-General administration -Human resource management -Technology development -Procurement

Factors to consider when assessing SUPPORT ACTIVITIES Procurement:

-Procurement of raw material inputs to optimize quality and speed and to minimize associated costs -Develop win-win relationships with suppliers -Analysis and selection of alternative sources of inputs to minimize dependence on one supplier

Human Capital: Three Interdependent Activities

1. Attracting human capital 2. Developing human capital 3. Retaining human capital

Is a resource or capability? 1. Valuable? 2. Rare? 3. Difficult to imitate? 4. Without substitutes? 5. Implication for competitiveness

-1.no 2.no 3.no 4.no 5. Competitive disadvantage -1.yes 2.no 3.no 4.no 5. Competitive parity -1.yes 2.yes 3.no 4.no 5. Temporary competitive advantage -1. yes 2.yes 3.yes. 4.yes. 5.Sustainable competitive advantage

Overall cost leadership strategy examples

-Aggressive construction of efficient-scale facilities. -Vigorous pursuit of cost reductions from experience. -Tight cost and overhead control. -Avoidance of marginal customer accounts. -Cost minimization in all activities in the firm's value chain, such as R&D, service, sales force, and advertising. -Walmart is an example

EXAMPLE OF EFFICIENT OPERATIONS (Chipotle) Expediters

-An expediter is the extra person between the one who rolls your burrito and the one who rings up your order. The expediter's job? Getting your drink, asking if your order is "to go," and bagging your food.

Overall Cost Leadership: Improving Competitive Position vis-à-vis the Five Forces

-An overall low-cost position enables a firm to achieve above-average returns despite strong competition. It protects a firm against RIVALRY from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry. A low-cost position also protects firms against powerful buyers. BUYERS can exert power to drive down prices only to the level of the next most efficient producer. Also, a low-cost position provides more flexibility to cope with demands from powerful SUPPLIERS for input cost increases. The factors that lead to a low-cost position also provide a substantial ENTRY BARRIERS position with respect to SUBSTITUTE PRODUCTS introduced by new and existing competitors.

Strategy analysis- (4)

-Assessing intellectual capital -Analyzing the internal environment -Analyzing the external environment -Analyzing goals and objectives

Primary Activities: Example of Efficient Service (Sephora,Nordstrom)

-At Sephora, a customer service representative taking a phone call from a repeat customer has instant access to what shade of lipstick she likes best. This will help the rep cross-sell by suggesting a matching shade of lip gloss. Such personalization is expected to build loyalty and boost sales per customer. -Nordstrom, the Seattle-based department store chain, goes even a step further. It offers a cyber-assist: A service rep can take control of a customer's web browser and literally lead her to just the silk scarf that she is looking for.

Primary Activities: Example of Effective Marketing and Sales (BMW)

-Consider product placement. This is a marketing strategy that many firms are increasingly adopting to reach customers who are not swayed by traditional advertising. A recent example is the starring role that BMW has in the film Mission Impossible: Ghost Protocol. -In this latest in the series of Mission Impossible films, the i8 concept, a next-generation supercar from BMW, helps Tom Cruise and co-star Paul Patton race through Mumbai traffic. The car's appearance highlights the brand's return to Hollywood after a hiatus of more than a decade.

Key attributes of strategic management

-Directs the organization toward overall goals and objectives. -Includes multiple stakeholders in decision making. -Needs to incorporate short-term and long-term perspectives. -Recognizes trade-offs between efficiency and effectiveness.

Factors to consider when assessing SUPPORT ACTIVITIES Technology development:

-Effective R&D activities for process and product initiatives -Positive collaborative relationships between R&D and other departments -Excellent professional qualifications of personnel

Factors to consider when assessing SUPPORT ACTIVITIES General administration:

-Effective planning systems to attain overall goals and objectives -Excellent relationships with diverse stakeholder groups -Effective information technology to integrate value-creating activities

Factors to consider when assessing SUPPORT ACTIVITIES Human resource management:

-Effective recruiting, development, and retention mechanisms for employees -Quality relations with trade unions -Reward and incentive programs to motivate all employees

Factors to consider when assessing primary activities Outbound logistics:

-Effective shipping processes to provide quick delivery and minimize damages -shipping of goods in large lot sizes to minimize transportation costs

Organizational examples

-Effective strategic planning process -Excellent evaluation and control systems

Factors to consider when assessing primary activities Operations:

-Efficient plant operations to minimize costs -Efficient plant layout and workflow design -Incorporation of appropriate process technology

Strategy formulation- (4)

-Entrepreneurship strategy and comp. dynamics -Formulating international strategies -Formulating corporate level strategies -Formulating business level strategies

CHAPTER 2: Scanning and monitoring the environment-

-Environmental monitoring -Competitive intelligence -Forecasts

Human examples

-Experience and capabilities of employees -Trust -Managerial skills -Firm specific practices and procedures

EXAMPLES OF OVERALL COST LEADERSHIP SUPPORT ACTIVITIES Firm infrastructure

-Few management layers to reduce overhead costs -Standardized accounting practices to minimize personnel required

Financial examples

-Firms cash account and cash equivalents -Firms capacity to raise equity -Firms borrowing capacity

Organizational capabilities

-Firms competencies or skills to transfer inputs to outputs -capacity to combine tangible and intangible resources, using organizational processes to attain the desired end result -outstanding customer service -excellent product development capabilities -Innovativeness -ability to hire, motivate, and retain human capital

Intangible resources (3)

-Human -Innovation and creativity -Reputation

Value chain: Primary activities (5)

-Inbound logistics -Operations -Outbound logistics -Marketing and sales -Service

Factors to consider when assessing primary activities Marketing and Sales:

-Innovative approaches to promotion and advertising -Proper identification of customer segments and needs

Factors to consider when assessing primary activities Inbound logistics:

-Location of distribution facilities to minimize shipping times -Warehouse layout and designs to increase efficiency of operations for incoming materials

Support Activities:Example of Effective Procurement (Microsoft)

-Microsoft has improved its procurement process (and the quality of its suppliers) by providing formal reviews of its suppliers. One of Microsoft's divisions has extended the review process used for employees to its outside suppliers.

Physical examples

-Modern plant and facilities -Favorable manufacturing locations -State of the art machinery and equipment

Factors to consider when assessing primary activities Service:

-Quick response to customer needs and emergencies -Quality of service personnel and ongoing training

What are the limitations of SWOT?

-Strengths May Not Lead to an Advantage: The skills of a highly creative product designer would offer little competitive advantage to a firm that produces low-cost commodity products. -Focus on the External Environment Is Too Narrow: Strategists who rely on traditional definitions of their industry and competitive environment often focus their sights too narrowly on current customers, technologies, and competitors. Example: Encyclopedia Britannica. -Gives a One-Shot View of a Moving Target -Overemphasizes a Single Dimension of Strategy: Sometimes firms become preoccupied with a single strength or a key feature of the product or service they are offering and ignore other factors needed for competitive success. For example, Toyota's focus on cost control lead to quality issues and recalls

Innovation and creativity examples

-Technical and scientific skills -innovation capacities

EXAMPLE OF EFFICIENT OPERATIONS Linebackers-

-These are people who patrol the countertops, serving-ware, and bins of food, so the ones who are actually serving customers never turn their backs on them

Potential Pitfalls of Overall Cost Leadership Strategies

-Too much focus on one or a few value-chain activities. Managers may decide to cut selling and marketing expenses but ignore manufacturing expenses. -Increase in the cost of the inputs on which the advantage is based. Upward pressure on labor costs in Chinese factories, undercutting the cost advantage of firms producing there. -A strategy that can be imitated too easily. Cost/price reduction is the easiest strategy to imitate! -A lack of parity on differentiation. Low cost/price is not enough. Perceived quality must also be communicated. Ex: Long bumper-to-bumper warranties on Korean cars. -Reduced flexibility. Coors large & efficient production system was not able to respond to the Craft brew craze in a timely fashion -Obsolescence of the basis of cost advantage. Other firms find more creative ways to cut costs such as re-engineering and redesigned production facilities. Toyota vs. GM.

Technological examples

-Trade secrets -Innovative production process -patents, copyrights, trademarks

Potential pitfalls of differentiation strategy

-Uniqueness that is not valuable. -Too much differentiation. -A price premium that is too high. -Differentiation that is easily imitated. GPS -Dilution of brand identification through product-line extensions. -Perceptions of differentiation that vary between buyers and sellers. One's luxury is another's commodity!

procurement

-effective policy guidelines to ensure low cost raw materials (with acceptable quality levels) -shared purchasing operations with other business units

technology development

-effective use of automated technology to reduce scrappage rates -expertise in process engineering to reduce manufacturing costs

Human resource management

-minimize costs associated with employee turnover through effective policies -effective orientation and training programs to maximize employee productivity

marketing and sales

-purchase of media in large blocks -sales-force utilization is maximized by territory management

Service

-thorough service repair guidelines to minimize repeat maintenance calls -Use of single type of vehicle to minimize repair costs

STAKE HOLDER GROUP NATURE OF CLAIM? 1. Stockholders 2. Employees 3. Suppliers 4. Creditors 5. Customers 6. Government 7. Communities

1. Dividends, capital appreciation 2. Wages, benefits, safe working environment, job security 3. Payment on time, assurance of continued relationship 4. Payment of interest, repayment of principal 5. Value, warranties 6. Taxes, compliance of regulations 7. Good citizenship behaviors such as charities, employment, not polluting the environment

Developing human capital (4)

1. Encouraging widespread involvement 2. Mentoring 3. Monitoring progress and tracking development 4. Evaluating human capital

Porters 5 forces

1. Entry 2. Suppliers 3. Substitutes 4. Buyers 5. Rivalry

1. Explicit knowledge 2. Tacit knowledge

1. Explicit knowledge that is codified, documented, easily reproduced, and widely distributed, such as engineering drawings, software code, and patents. 2. Tacit knowledge that is in the minds of employees and is based on their experiences and backgrounds. Tacit knowledge is shared only with the consent and participation of the individual.

1. Management- 2. Board of directors- 3. Shareholders-

1. Headed by chief executive officer 2. Elected by the shareholders to represent their interests 3. Owners

Attracting human capital (3)

1. Hire for attitude, train for skill 2. Sound recruiting choices and networking 3. Attracting millennials

Examples of the following: 1. Economic 2. political-legal 3. global 4. technological 5. demographic 6. socio-cultural 7. company

1. Interest rates, credit conditions, business cycle 2. Tax policies, trade regulations, minimum wage legislation 3. Natural disasters, War 4. 3d printing, engine effeciency 5. Age, income, geography, gender, race, education 6. social attitudes, beliefs 7. Suppliers, customers etc.

Criteria for assessing sustainability of resources and capabilities 1. Valuable? 2. Rare? 3. Difficult to imitate? 4. Difficult to substitute?

1. Neutralize threats and exploit opportunities 2. Not many firms posses 3. Physically unique, path dependency (how accumulated over time), causal ambiguity (difficult to disentangle what is is or how its created), social complexity (trust, interpersonal relationships, culture, reputation) 4. No equivalent strategic resources or capabilities

CHAPTER 4: BUSINESS LEVEL STRATEGY 3 generic strategies

1. Overall cost leadership 2. Differentiation 3. Focus strategy

Retaining human capital (3)

1. identifying with an organizations mission and values 2. Challenging work and stimulating environment 3. Financial and non-financial rewards and incentives

1. Entry- 2. Suppliers- 3. Substitutes- 4. Buyers- 5. Rivalry-

1. •Entry. Is it difficult or easy to get into this industry? 2. •Suppliers. Are the supplies commodities or specialties? 3. •Substitutes. Are there lots of other alternatives for the product of this industry? 4. •Buyers. Are they consumers or companies? 5. •Rivalry is always a strong force!

Primary Activities: Example of Efficient Outbound Logistics (campbells)

Each morning, retailers electronically inform Campbell of their product needs and of the level of inventories in their distribution centers. Campbell uses that information to forecast future demand and to determine which products require replenishment (based on the inventory limits previously established with each retailer). Trucks leave Campbell's shipping plant that afternoon and arrive at the retailers' distribution centers the same day. The program cuts the inventories of participating retailers from about a four- to a two-weeks' supply.

External Environment of the firm (7)

Economic political-legal global technological demographic socio-cultural company

Tangible Resources (4)

Financial Physical Technological Organizational

Strategic objectives examples: Financial- Non-financial

Financial: Generate internet-related revenue of 1.5 billion. cut corporate overhead costs by $30 million per year. Non-financial: We want to be the top ranked supplier to our customer reduce volatile air emissions 15 percent by 2015 from 2010 base year

How do companies create value in the knowledge-intensive economy?

First, human capital is the "individual capabilities, knowledge, skills, and experience of the company's employees and managers." This knowledge is relevant to the task at hand, as well as the capacity to add to this reservoir of knowledge, skills, and experience through learning.

Strategic managers should ask what?

How should we compete in order to create competitive advantages in the marketplace? How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute?

Value-Chain: Primary Activities Examples of Differentiation

Inbound Logistics •Superior material handling operations to minimize damage. •Quick transfer of inputs to manufacturing process. Operations •Flexibility and speed in responding to changes in manufacturing specifications. •Low defect rates to improve quality. Outbound Logistics •Accurate and responsive order processing. •Effective product replenishment to reduce customer inventory. Marketing and Sales •Creative and innovative advertising programs. •Fostering of personal relationship with key customers. Service •Rapid response to customer service requests. •Complete inventory of replacement parts and supplies.

OPPORTUNITIES

Opportunities •Attractive and flexible employment •Positive environmental commitments •Higher standards demanded from suppliers •Corporate responsibility committee •Honest and real brand image

Overall cost leadership

Overall cost leadership, is based on creating a low-cost position. Here, a firm must manage the relationships throughout the value chain and lower costs throughout the entire chain

Three Generic Strategies on two dimensions: competitive advantage and markets served

Overall cost leadership: Low cost position, broad target market Broad differentiation: superior perceived value by customer, broad target market Cost focus: Low cost position, narrow target market Differentiation focus: Superior perceived value by customer, narrow target markets

Differentiation CAN take MANY forms:

Prestige or brand image (Hotel Monaco, BMW automobiles).25 Quality (Apple, Ruth's Chris steak houses, Michelin tires). Technology (Martin guitars, Marantz stereo components, North Face camping equipment). Innovation (Medtronic medical equipment, Apple's iPhones and iPads). Features (Cannondale mountain bikes, Honda Goldwing motorcycles). Customer service (Nordstrom department stores, USAA financial services). Dealer network (Lexus automobiles, Caterpillar earthmoving equipment).

Differentiation

Requires a firm to create products and/or services that are unique and valued. Here, the primary emphasis is on "nonprice" attributes for which customers will gladly pay a premium

How do companies create value in the knowledge-intensive economy? (cont.)

Second, social capital is "the network of relationships that individuals have throughout the organization." Relationships are critical in sharing and leveraging knowledge and in acquiring resources. Social capital can extend beyond the organizational boundaries to include relationships between the firm and its suppliers, customers, and alliance partners.

CHAPTER 3: INTERNAL ENVIRONMENT Swot

Strength Weakness Opportunity Threats

CHAPTER 4:RECOGNIZING A FIRMS INTANGIBLE ASSETS Ratio of Market Value to Book Value for Selected Companies

The gap between a firm's market value and book value is far greater for knowledge-intensive corporations than for firms with strategies based primarily on tangible assets. Apple, Google, Microsoft, and Oracle have very high market value to book value ratios because of their high investment in knowledge resources and technological expertise

How do companies create value in the knowledge-intensive economy? (cont.)

Third is the concept of "knowledge," which comes in two different forms.

THREATS

Threats •Fabricated stories about the quality of chicken •Unhealthy foods for children •Health concerns surrounding beef, poultry, and fish •CSR at the risk of profit loss •Contributor to global warming •Political instability (e.g. Russia)

Primary Activities: Example of Efficient Inbound Logistics (toyota)

Toyota epitomizes JIT inventory systems, in which parts deliveries arrive at the assembly plants only hours before they are needed. JIT systems will play a vital role in fulfilling Toyota's commitment to fill a buyer's new-car order in just five days. This standard is in sharp contrast to most competitors that require approximately 30 days' notice to build vehicles. Toyota's standard is three times faster than even Honda Motors, considered to be the industry's most efficient in order follow-through. The five days represent the time from the company's receipt of an order to the time the car leaves the assembly plant

Comparing vision vs. mission statement

Vision: Wellpoint WILL redefine our industry: Through a new generation of consumer friendly products that put individuals back in control of their future. Mission: The Wellpoint companies provide health SECURITY by offering a CHOICE of quality branded health and related financial services DESIGNED to meet the changing expectations of individuals, families, and their sponsors throughout a LIFELONG relationship

CHAPTER 1: Strategic management

consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.

Focus strategy

directs attention (or "focus") toward narrow product lines, buyer segments, or targeted geographic markets, and they must attain advantages through either differentiation or cost leadership.

PRIMARY ACTIVITIES inbound logistics

effective layout of receiving dock operations

operations

effective use of quality control inspectors to minimize rework

outbound logistics

effective utilization of delivery fleets

difference between cost leadership/differentiation and focusers

the overall cost leadership and differentiation strategies strive to attain advantages industry wide, focusers have a narrow target market in mind.

Hierarchy of Goals pyramid

top: Vision middle: mission statement bottom: Strategic objectives Bottom is specific and top is general goals

Industry's attractiveness according to Porter's Model (5-force analysis)

•1. Rivalry force should be listed first. Tell me right away if it is S, M, or W. Rivalry is always strong which is an unattractive factor for the firms in the industry. •2. Buyers force. First ask yourself, who are the buyers in this industry? If the industry is a retail type, then the buyers are consumers and they are weak (W). If the industry is a manufacturing one, then the buyers are strong. •3. Suppliers force. Commodity suppliers are weak and specialty suppliers are strong. •4. Entry force. If the industry is manufacturing, then the force is weak. If it is retailing, the force is strong. •5. Substitutes. If there are several alternatives for the main product of the industry, the this force is strong. If not, weak. Substitutes are not other brands. They are other choices of products.

Value Chain Analysis

•A strategic analysis of an organization that uses value-creating activities. •Views the organization as a sequential process of value-creating activities. The approach is useful for understanding the building blocks of competitive advantage. •Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price a firm's product commands and the quantity it can sell. •A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. •Creating value for buyers that exceeds the costs of production (i.e., margin) is a key concept used in analyzing a firm's competitive position.

EXAMPLE OF EFFICIENT OPERATIONS Aces in their places

•Aces in their places. This refers to a commitment to having what each branch considers its top servers in the most important positions at peak times. Thus, there are no trainees working at burrito rush hour.

EXAMPLE OF EFFICIENT OPERATIONS Mise en place

•Mise en place. In other restaurants, this means setting out ingredients and utensils ready for use. In Chipotle's case, it means zero tolerance for not having absolutely everything in place ahead of lunch and dinner rush hours.

MCDONALD'S SWOT STRENGTH

•Strengths •Selective supply chain strategy •Rigorous food safety standards •Affordable prices •Decentralized yet connected system •Profitable

WEAKNESS

•Weaknesses •Inflexible to changes in market trends •Difficult to find and retain employees •Drive for achieving shareholder value may counter CSR •Promotes unhealthy food