OBC1 - Set #6 - Strategic Management, Mission, Objectives, Strategies...

Illustrate how a firm can pursue both low-cost and differentiation strategies:

A firm could take advantage of opportunities to cut costs and streamline processes, thereby delivering a 'cheaper' product, while at the same time emphasizing the things about the product that are standout and different than other products on the market (duh)

Decide when a business should diversify:

According to the 'Grand Strategy Selection Matrix': ~ When a company wants to overcome weakness with an external emphasis for growth or profitability, they should consider Conglomerate Diversification (dissimilar businesses) ~ When a company wants to maximize strengths with an external emphasis for growth/profitability, the company should consider Concentric Diversification According to the 'Grand Strategy Cluster': ~ If a co. has a strong competitive position in an environment of rapid market growth, it could use Concentric Diversification ~ If a co. has a strong competitive position in an environment of slow market growth, it could use Concentric Diversification or Conglomerate Diversification ~ If a co. has a weak competitive position in an environment of slow market growth, it could use Concentric Diversification or Conglomerate Diversification

Explain agency theory and its value in helping a board of directors improve corporate governance:

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." Knowledge of this potential problem can help the board strive for ways to align managers' interests with owners and other shareholder interests.

Determine why a business would choose a low-cost, differentiation, or speed-based strategy:

Low-Cost: a business would pursue this strategy and establish long-term competitive advantages because they would be able to emphasize and perfect value chain activities that can be achieved at costs substantially below what competitors are able to match on a sustained basis - this allows the firm, in turn, to compete primarily by charging a price lower than competitors can match and still stay in business Differentiation: a business would pursue this strategy if it could be "different" from other available competitive products based on features, performance, or other factors not directly related to cost and price. The difference would be one that would be hard to create and/or difficult to copy or imitate. Speed-based: a company would choose this strategy if it had functional capabilities and activities that allow the company to meet customer needs directly or indirectly more rapidly than its main competitors. Speed is a form of differentiation.

Discuss the importance of the value disciplines

M. Treacy and F. Weirsema believe that strategies must center on delivering superior customer value through one of three value disciplines: operational excellence, customer intimacy, or product leadership. ~ Operational excellence: refers to providing customers with convenient and reliable products or services at competitive prices. ~ Customer intimacy involves offerings tailored to match the demands of identified niches. ~ Product leadership, the third discipline, involves offering customers leading-edge products and services that make rivals' goods obsolete.

Explain the nature and value of a market focus strategy:

A "Market Focus" strategy is a generic strategy that applies a differentiation strategy approach, or a low-cost strategy approach, or a combination - and does so solely in a narrow (or "focused") market niche rather than trying to do so across the broader market. The narrow focus may be geographically defined or defined by product type features, or target customer type, or some combination of these. Market focus allows some businesses to compete on the basis of low costs, differentiation, and rapid response against much larger businesses with greater resources. Focus lets a business "learn" its target customers - their needs, special considerations they want accommodated - and establish personal relationships in ways that "differentiate" the smaller firm or make it more valuable to the target customer. Rapid response - enhanced knowledge of its customers

Understand the creation of sets of long-term objectives and grand strategies options

"West Coast Markets present little Competition" - choose Horizontal Integration or Market Development grand strategies "Current Markets sensitive to price competition" - choose Concentration or Selective Retrenchment grand strategies "Current industry product lines offer too narrow a range of markets" - choose Product Development or Concentration grand strategies

Describe a comprehensive model of strategic decision making:

1. Company Mission, Social Responsibility & Ethics 2. Internal Analysis (analyze your resources) 3. External Environment analysis 4. Strategic Analysis and Choice - choose best opportunities/strategies 5. Long-Term Objectives - results you'll seek over the long-term 6. Generic and Grand Strategies - determine your generic strategy (will you be low-cost leader? Etc) and your overall Grand Strategy package of how your objectives will be achieved 7. Short-Term Objectives - these work in the short-term to achieve the long-term objectives 8. Action Plans - how you'll go about achieving the objectives 9. Functional Tactics - radio ad campaign, inventory reduction, etc 10. Policies that Empower Action - get policies in place to be pro-active and speedy 11. Restucturing, Reengineering and Refocusing the Organization - complete overhaul of vision? Etc 12. Strategic Control and Continuous Improvement - guiding and constantly improving the process

What are the 15 generic 'Grand Strategies' used to form a company's competitive plan?

1. Concentrated Growth 2. Market Development 3. Product Development 4. Innovation 5. Horizontal Integration 6. Vertical Integration 7. Concentric Diversification 8. Conglomerate Diversification 9. Turnaround 10. Divestiture 11. Liquidation 12. Bankruptcy [Ch 7 and Ch 11] 13. Joint Venture 14. Strategic Alliance 15. Consortia, Keiretsus, Chaebols

Describe the five qualities of long-term corporate objectives that make them useful to strategic managers:

Flexible - Objectives should be adaptable to unforeseen or extraordinary changes in the firm's competitive or environmental forecasts. Unfortunately, such flexibility usually is increased at the expense of specificity. Measurable - Objectives must clearly and concretely state what will be achieved and when it will be achieved. Thus, objectives should be measurable over time. Motivating - People are most productive when objectives are set at a motivating level—one high enough to challenge but not so high as to frustrate or so low as to be easily attained. Suitable - Objectives must be suited to the broad aims of the firm, which are expressed in its mission statement. Understandable - Strategic managers at all levels must understand what is to be achieved. They also must understand the major criteria by which their performance will be evaluated.

Explain which goal of a company is most important: survival, profitability, or growth.

I would say profitability - because if a firm ISN'T profitable, then it cannot survive or grow

Determine good business strategies in fragmented industries:

In FRAGMENTED industries: ~ Tightly Managed Decentralization: Fragmented industries are characterized by a need for intense local coordination, a local management orientation, high personal service, and local autonomy. Recently, however, successful firms in such industries have introduced a high degree of professionalism into the operations of local managers ~ "Formula" Facilities: This alternative, related to the previous one, introduces standardized, efficient, low-cost facilities at multiple locations. Thus, the firm gradually builds a low-cost advantage over localized competitors. ~ Increased Value Added: an effective strategy may be to add value by providing more service with the sale or by engaging in some product assembly that is of additional value to the customer. Specialization Focus strategies that creatively segment the market can enable firms to cope with fragmentation. Specialization can be pursued by 1. Product type. The firm builds expertise focusing on a narrow range of products or services. 2. Customer type. The firm becomes intimately familiar with and serves the needs of a narrow customer segment. 3. Type of order. The firm handles only certain kinds of orders, such as small orders, custom orders, or quick turnaround orders. 4. Geographic area. The firm blankets or concentrates on a single area. ~ Although specialization in one or more of these ways can be the basis for a sound focus strategy in a fragmented industry, each of these types of specialization risks limiting the firm's potential sales volume. ~ Bare Bones/No Frills Given the intense competition and low margins in fragmented industries, a "bare bones" posture—low overhead, minimum wage employees, tight cost control—may build a sustainable cost advantage in such industries.

Determine good business strategies in global industries:

In Global Industries: ~ Broad-line global competition—directed at competing worldwide in the FULL PRODUCT LINE of the industry, often with plants in many countries, to achieve differentiation or an overall low-cost position. ~ Global focus strategy—targeting a particular SEGMENT of the industry for competition on a worldwide basis. ~ National focus strategy—taking advantage of differences in national markets that give the firm an edge over global competitors on a nation-by-nation basis. ~ Protected niche strategy—seeking out countries in which governmental restraints exclude or inhibit global competitors or allow concessions, or both, that are advantageous to localized firms.

Understand and use three different portfolio approaches to conduct strategic analysis and choice in multi-business companies:

Portfolio Techniques: an approach pioneered by the Boston Consulting Group that attempted to help managers "balance" the flow of cash resources among their various businesses while also identifying their basic strategic purpose within the overall portfolio - this includes: • The BCG Growth-Share Matrix - combining factors of market growth rate and relative competitive position (labeling each business in the portfolio either a Star, Dog, Problem Child or Cash Cow) • The Industry Attractiveness-Business Strength Matrix - uses multiple factors to assess industry attractiveness (high/med/low) and business strength (strong/avg/weak) rather than the single measures (market share and market growth) • BCG's Strategic Environments Matrix - a quadrant characterizing business' by Fragmented, Specialization, Stalemate and Volume environments w/ two factors: Sources of Advantage (many or few) and Size of Advantage (small or big)

Discuss seven different topics for long-term corporate objectives:

Profitability - The ability of any firm to operate in the long run depends on attaining an acceptable level of profits. Productivity - Strategic managers constantly try to increase the productivity of their systems. Competitive Position - One measure of corporate success is relative dominance in the marketplace. Employee Development - Employees value education and training, in part because they lead to increased compensation and job security. Employee Relations - whether or not they are bound by union contracts, firms actively seek good employee relations. Technological Leadership - Firms must decide whether to lead or follow in the marketplace. Public Responsibility - Managers recognize their responsibilities to their customers and to society at large.

Explain the concept of strategic management:

Strategic Management is the set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company's objectives

Describe the role of a company's board of directors:

The group of stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment of the company mission. Their major responsibilities: 1. To establish and update the company mission. 2. To elect the company's top officers, the foremost of whom is the CEO. 3. To establish the compensation levels of the top officers, including their salaries and bonuses. 4. To determine the amount and timing of the dividends paid to stockholders. 5. To set broad company policy on such matters as labor-management relations, product or service lines of business, and employee benefit packages. 6. To set company objectives and to authorize managers to implement the long-term strategies that the top officers and the board have found agreeable. 7. To mandate company compliance with legal and ethical dictates

Identify requirements for business success at different stages of industry evolution:

see pg 37 of notes

Understand the portfolio approach to strategic analysis and choice in multi-business companies:

The portfolio approach is where you pursue and "rationalize" diversification strategies - which companies to buy and sell and keep as part of your portfolio strategy - some businesses will be disparate, some will be similar but they should all ultimately be aligned/play into your strategy.

Describe how strategic decisions differ from other decisions that managers make:

The top level of the company (CORPORATE level - board, chief exec, admin officers) makes the strategic decisions and are responsible for financial performance, achievement of non-financial goals (enhancing firm's image...fulfilling its social responsibilities) Strategic Decisions involve: determining businesses to be involved in...determining generic strategies...setting objectives and formulating strategies that span the activities and functional areas of these businesses...exploiting the firm's distinctive competencies by adopting a portfolio approach to the mgmt. of its businesses and by developing long-term plans (like 3-5 year periods, typically) [compared to Business Level decisions which are in the middle of the hierarchy and involve more translating the corporate/strategic intent into concrete objectives and strategies for individual business divisions, or SBU's - Business Level determines how the firm will compete in the selected product-market arena...they strive to identify and secure the most promising market segment within that arena] [or compared to Operational/Functional Level decisions which are "doing things right", after the Corporate and Business Levels have determined the "right things to do" - this bottom hierarchy level addresses efficiency and effectiveness or production and marketing systems, quality of customer service, etc]

Explain why it is important for the mission statement to include the company's basic product or service, its primary markets, and its principal technology:

They describe, taken altogether in combination, the company's business activity.

Give examples of the newest trends in mission statement components: customer emphasis, quality, and company vision:

~ Customer Focus: a focus on customer satisfaction causes managers to realize the importance of providing quality customer service. Strong customer service initiatives have led some firms to gain competitive advantages in the marketplace. Hence, many corporations have made the customer service initiative a key component of their corporate mission. Examples: extensive product safety programs...feedback % goals and commensurate rewards/penalties... ~ Quality: The new philosophy is that quality should be the norm (Six Sigma, Malcolm Baldridge Award, "Quality is Job 1!", etc) ~ Vision: Whereas the mission statement expresses an answer to the question "What business are we in?" a company vision statement is sometimes developed to express the aspirations of the executive leadership. A vision statement presents the firm's strategic intent that focuses the energies and resources of the company on achieving a desirable future. However, in actual practice, the mission and vision statement are frequently combined into a single statement. When they are separated, the vision statement is often a single sentence, designed to be memorable. Example - General Electric's vision: "We bring good things to life"

Give examples of strategic decisions that companies have recently made:

~ HP fired Carly Fiorina after she made a chaotic mess of their org structure - they hired Mark Hurd, who reorganized the company and axed some layers of middle mgmt to increase speed and cut out time-wasting administrative bureaucracy ~ AOL bought Time Warner in a smooth move that ended up costing $196 billion

Explain the generic strategies of low-cost leadership, differentiation, and focus:

~ Low-Cost Leadership: Low-cost leaders depend on some fairly unique capabilities to achieve and sustain their low-cost position. ~ Differentiation - Strategies dependent on differentiation are designed to appeal to customers with a special sensitivity for a particular product attribute [marketing channels...features...service network that supports product] ~ Focus strategy - whether anchored in a low-cost base or a differentiation base, attempts to attend to the NEEDS of a particular market segment.

Discuss the importance of company philosophy, public image, and company self-concept to stockholders.

~ Philosophy: The statement of a company's philosophy, often called the company creed, usually accompanies or appears within the mission statement. It reflects or specifies the basic beliefs, values, aspirations, and philosophical priorities to which strategic decision makers are committed in managing the company. Stockholders can see which principles the company uses to guide its objectives and therefore its strategies, which ensure that objectives and strategies are aligned with the companies' principles and values. ~ Public Image: "Cross Pens makes high-quality writing instruments" is an example of a public image - how the public views the company - and the company should focus on strategies that are consistent w/ that image (i.e., not suddenly diversifying into .59 pen market). Companies need to be in tune with what the public 'thinks' of them, not just in times of crisis or downturn, but ALL the time and allow this to help guide strategy, to encourage alignment of mission and vision with what the public interprets so that company knows it is actually accomplishing it. ~ Company Self-Concept: to achieve its proper place in a competitive situation, the firm realistically must evaluate its competitive strengths and weaknesses. This idea—that the firm must know itself—is the essence of the company self-concept. The idea is not commonly integrated into theories of strategic management; its importance for individuals has been recognized since ancient times. Both individuals and firms have a crucial need to know themselves. The ability of either to survive in a dynamic and highly competitive environment would be severely limited if they did not understand their impact on others or of others on them.

Appreciate the importance of strategic management as a process:

~ The 'process' is the flow of information through interrelated stages of analysis toward the achievement of an aim. The steps/stages of the Strategic Management Process are pretty uniform no matter what company you work for - but how much time and how formal each stage is, depends on the size and environment of the company. Sometimes companies don't even spend time on a stage and skip over it, if everything is working fine - aka, maybe the mission/vision stage is working well and no time needs to be spent on it for a decade, etc. ~ Strategy formulation and implementation are sequential - sort of a top-down approach from broad to detailed when viewing mission/vision, on down to functional tactics and policies, and everything is done in order. ~ The process contributes to feedback - and with the feedback a company gets through completing/working its process, it may adjust its strategies and approach as it continues to proceed through the process, continuously. ~ The process is also dynamic - constantly changing conditions that need to be closely monitored so the company doesn't pursue a strategy that ends up being totally irrelevant. ~ The strategic process undergoes continual assessment and subtle updating.

Understand the synergy approach to strategic analysis and choice in multi-business companies:

~ The SYNERGY APPROACH is where you leverage core competencies into your other businesses - they are synergistic based on these competencies. [Opportunities to build value via diversification, integration, or joint venture strategies are usually found in market-related, operations-related, and management activities. Each business's basic value chain activities or infrastructure become a source of potential synergy and competitive advantage for another business in the corporate portfolio.] • The shared opportunities must be a significant portion of the value chain of the businesses involved. • The businesses involved must truly have shared needs—need for the same activity—or there is no basis for synergy in the first place. ~ Each Core Competency Should Provide a Relevant Competitive Advantage to the Intended Businesses ~ Businesses in the Portfolio Should Be Related in Ways That Make the Company's Core Competencies Beneficial ~ Any Combination of Competencies Must Be Unique or Difficult to Recreate

Name the benefits and risks of a participative approach to strategic decision making:

~ The benefits are that you get a large variety of opinions and skills, perspectives and strategies to choose from, and that everybody tends to get more "on board" with the overall strategy the more they participate; understanding and motivation are enhanced, gaps and overlaps in activities among individuals and groups are reduced as things get clarified, resistance to change is reduced ~ The risk of participative approach is that too much time can be spent on strategic mgmt process which may cut into time on operational responsibilities - scheduling and prioritization are key. Second, if formulators aren't intimately involved in implementation, they may shirk their individual responsibility for the decisions reached. Thus, strategic mgrs must be trained to limit their promises to performance that the decision makers and their subordinates can deliver. Third, strategic managers must be trained to anticipate and respond to the disappointment of participating subordinates over unattained expectations. Subordinates may expect their involvement in even minor phases of total strategy formulation to result in both acceptance of their proposals and an increase in their rewards, or they may expect a solicitation of their input on selected issues to extend to other areas of decision making.

Describe a company mission and explain its value:

~ The company mission is a broadly framed but enduring statement of a firm's intent. It embodies the business philosophy of the firm's strategic decision makers, implies the image the firm seeks to project, reflects the firm's self-concept, and indicates the firm's principal product or service areas and the primary customer needs the firm will attempt to satisfy. In short, it describes the firm's product, market, and technological areas of emphasis, and it does so in a way that reflects the values and priorities of the firm's strategic decision makers. ~ The principal value of the mission statement is its specification of the firm's ultimate aims

Identify the limitations and weaknesses of the various portfolio approaches:

• A key problem with the portfolio matrix was that it did not address how value was being created across business units—the only relationship between them was cash. • Truly accurate measurement for matrix classification was not as easy as the matrices portrayed. • The underlying assumption about the relationship between market share and profitability—the experience curve effect—varied across different industries and market segments. Some have no such link. • The limited strategic options, intended to describe the flow of resources in a company, came to be seen more as basic strategic missions, which creates a false sense of what each business's strategy actually entails. • The portfolio approach portrayed the notion that firms needed to be self-sufficient in capital. This ignored capital raised in capital markets. • The portfolio approach typically failed to compare the competitive advantage a business received from being owned by a particular company with the costs of owning it. • Recent research by well-known consulting firm Booz Allen Hamilton suggests that "conventional wisdom is wrong. Corporate managers often rely on accounting metrics [based on past performance] to make business decisions." They go on to argue that "past performance is a poor predictor of the future. When performance is assessed over time, greater shareholder value can be created by improving the operations of the company's worst-performing businesses." "The way to thrive," they say, "is to love your dogs."