TAMU MGMT 309 EXAM 2

Organizational opportunities

aspects of the environment that may allow the organization to achieve greater performance.

transnational strategy

attempts to gain the benefits of both the multidomestic strategy (i.e., local responsiveness) and the global strategy (i.e., economies of scale). Some functions are centralized while others are decentralized, and the corporation invests attention in integrating and coordinating activities in the various subsidiaries.

Operational goals

(objectives) are set by and for lower-level managers and address shorter-term actions needed to meet the tactical goals (e.g., to add desirable features, we will research and design new features for two products each quarter this year).

steps in the rational decision-making process:

1.Recognize and define the decision situation. Based on a stimulus (some event or new information), realize a decision needs to be made. 2.Identify alternatives. The number of alternatives should rise in proportion with the importance of the decision. 3.Evaluate the alternatives. For each, consider how feasible it is, how well it's likely to address the problem or opportunity (how satisfactory it is), and what its consequences are likely to be. 4.Choose the best alternative, that is, the one most appropriate to the situation. 5.Implement the chosen alternative, working with other people or departments as needed. This step often involves an operational plan, as well as a contingency plan if things don't go as expected. 6.Evaluate the results. Perhaps the chosen alternative was the right one, or could work if implemented differently, or maybe a different alternative should be tried. In some cases, the manager will decide they were on the wrong track altogether and that the entire problem needs to be redefined.

decision-making process includes several steps:

1.Recognizing and defining the nature of a decision situation. First, the manager needs to appreciate that a decision needs to be made. 2.Identifying alternatives. If there is only one possible course of action, then no decision needs to be made; the manager does the only thing that can be done. Almost always, however, there are multiple options. 3.Choosing the most effective alternative. To make this judgment, the manager needs to have a clear definition of effectiveness as it applies to the situation. For example, in one situation, the most effective decision is one that minimizes costs, while in another situation, the most effective decision is one that maximizes market share. 4.Putting the decision into effect. The manager makes a plan to translate the decision into actions.

decision making example

1.The manager of a call center learns that a high proportion of dissatisfied customers demand refunds and are unwilling to give the company a chance to fix the problem. 2.The manager gathers information, and several alternatives emerge. The call center could assign dissatisfied customers to a select few representatives who are especially good at handling such calls. The company could also offer customers substantial discounts if they agree to give the company another chance. 3.Based on experience, the manager has confidence in the ability of her best representatives to deal with upset customers. At the same time, she is concerned that discounts would cost the company too much money. She decides to set up a workflow that routes upset customers to select representatives. 4.The manager works with the technology and training teams to develop a way to screen and route customers appropriately.

single-product strategy

A company has the least amount of diversification when it has a ___, providing just one product or service, often in a single market. Because the organization specializes in its one offering, it can become very good at making and selling it. However, if customer demand for the product wanes, the company is in trouble. Diversification makes organizations more resilient, because even if some businesses do worse when the environment changes, others may be unaffected or even do better.

forward vertical integration

A company that begins to do the same work as one of its customers and then sells to that customer's customers is engaged in

analyzer

A firm may fall between the prospector and defender positions, both maintaining its current business and trying to innovate. This ___ strategy is common among large companies, which have not only sizable existing businesses that are worth protecting but also the resources to pursue new opportunities. typically exercise strict control over resources to keep costs low while also promoting flexibility and creativity. Goal optimization can be especially challenging in the face of these contradictory needs.

defender

A firm that focuses on maintaining stable growth by protecting its current business uses the ____ strategy. This firm tries to lower costs and improve the performance of its core products/services. must lower costs and improve the performance of current products; they do not put resources toward innovation.

reactor

A firm that reacts to changes in the environment with no clear guiding strategy is said to be using the ___ strategy. These firms tend not to perform well.

unrelated diversification

A large organization operating in multiple businesses, industries, or markets with little or no relation to each other is practicing ___. For example, Graham Holdings Company owns businesses in industries as diverse as television media, digital advertising, education, healthcare services, wood products, and the manufacture of parts used in industrial combustion processes, among many others.

related diversification

A large organization operating in multiple different but related businesses, industries, or markets is practicing ___.

maturity stage

After a period of growth, demand for the product or service stabilizes, and fewer new firms enter the market. Since there is limited opportunity for growth in this business, the company begins to look for ways to cut costs and to innovate elsewhere.

Programmed decisions

clearly structured and/or arise frequently. For example, if a call center has a rule that upset customers are to be transferred to a supervisor, when a representative realizes a customer is angry, he makes a programmed decision to transfer the customer.

prospector strategy

An innovative firm that takes risks in order to grow uses the ____ strategy. This firm is constantly expanding into new markets and opportunities. must encourage creativity and adaptability. A decentralized organizational structure, in which decision making occurs lower in the organization, is often used to support these behaviors.

decline stage

At some point, demand for a product or service will begin to decline. An organization with a well-differentiated product or low costs may continue to perform well, even as the overall market shrinks. Organizations that do not anticipate this stage may become unprofitable.

Porter's five forces model

competitive rivalry, power of suppliers, power of buyers, threat of substitutes, and threat of new entrants.

Business-level strategy

concerns how the organization competes in a given industry or market. Many organizations limit themselves to one business-level strategy.

Communication and participation

Communicate with managers at all levels and invite their participation. This will help them understand how their goals and plans relate to the organization's overall strategy and other managers' goals and plans. Managers at all levels have valuable insights to contribute, and people who feel they have had a voice in forming a plan of action are more committed to achieve it.

Actual disadvantages of unrelated diversification

Corporate-level managers rarely know enough about the businesses the corporation owns to make good decisions about those businesses. Because the organization does not exploit synergies, if any, among the businesses, it is at a competitive disadvantage relative to businesses practicing related diversification.

Benefits of formal goal setting

Employee motivation Better communication More objective performance appraisals More systematic goal setting, with benefits for the organization and managers' career development

backwards vertical integration

Entering the business of a supplier or customer. A company that begins to make its own supplies is engaged in

Potential disadvantages of formal goal setting

Failure due to lack of top management support Emphasis on quantitative goals and plans at the expense of qualitative ones Excessive record keeping requirements Lack of ability to involve subordinates in the process, resulting in no true collaboration

Global efficiencies

Firms can choose the best locations anywhere in the world. Location efficiencies might be gained by choosing a site that has the lowest costs or is the closest to customers. Economies of scale are realized by using one facility to serve customers in more than one country. Economies of scope are achieved by broadening the product line in each country.

Rules and regulations

describe exactly how specific activities must be carried out. For instance, the library might have a rule that requires librarians to maintain a wait list for patrons who wish to check out a popular book.

Resistance to change

Goals and plans inherently involve changing the organization in some way, and resistance is a common human reaction.

Appreciation of benefits and limits

Help managers to understand their own effectiveness and the benefits of goals and plans for the organization. Also, help them understand the limits of even the best goal-setting and planning process so they are prepared from the outset to change course if needed.

In theory, unrelated diversification has two main advantages:

If one business is suffering a downturn, another is probably in a growth phase. If the different businesses offset each other, financial performance will be stable over time. Managers can optimize resource allocation by directing resources to the businesses with the highest potential.

sustained competitive advantage

If the competency cannot be imitated

The GE Business Screen guides corporations in managing their portfolio of businesses by rating businesses on which two dimensions?

Industry attractiveness and competitive position

An organization may take two approaches to address a weakness:

Invest resources to reduce the weakness or turn it into a strength. Change its mission so that the weakness is no longer relevant.

Consistency and currency

Managers are more committed to goals and plans when they see that these elements are effective. Making goals consistent up, down, and across the organization effectively coordinates people's efforts. Also, updating goals and plans as often as needed will ensure they are relevant to the current situation.

Manager reluctance

Managers may avoid setting goals—especially challenging goals— because of fear of failure.

inappropriate goals

Managers may set goals that are unrealistic or which conflict with other, more important goals.

developing tactical plans

Managers then identify all the resources, including time and people, needed to implement the tactical plans.

policy

states how the organization will respond to a given situation. For example, a public library might have a policy to acquire every book that wins a major literary award.

Multimarket flexibility

Organizations can learn different things in the different places they operate, and managers can then facilitate the transfer of this knowledge across the organization.

Related diversification has three main advantages

Reducing the organization's dependence on any one business Reducing overhead through the efficiency of shared functions (e.g., a single human resources department for all businesses) Increasing the organization's ability to use its strengths to pursue opportunities in more than one business. When the value of the businesses together is greater than the sum of their individual values, they have synergy.

Effective reward system

Reward managers for setting appropriate goals and achieving them. At the same time, do not penalize people for failures that are outside their control.

Poorly designed reward system

Rewards may be misaligned with goals. Also, managers may be incentivized to set too-easy goals instead of challenging ones, or short-term goals at the expense of long-term achievement.

Mission

states the organization's purpose, premises, values, and directions organization's unique purpose that distinguishes it from other organizations

different bases of relatedness

Similar technology Shared distribution and marketing channels Shared brand name and reputation Shared customers

Dynamic and complex environment

The environment can make planning for the future very difficult so that goals tend to become obsolete quickly.

Multimarket flexibility

The international environment is very challenging, but international businesses have an advantage over domestic businesses in that they can respond to a change in one country by altering their operations in another country. For example, if labor costs rise at a factory in China, the multinational corporation may be able to move that production to an existing factory in India, Malaysia, or Thailand.

Four purposes of goals

To serve as a "compass," giving people a single path to direct their activity To be an input to sound planning, which in turn will inform future goal setting To motivate employees. To be motivational, a goal should be specific and somewhat challenging, and people should be rewarded if they attain the goal. To assist with evaluation and control of organizational performance. Performance is measured against the goal, and adjustments may be made to improve performance or modify the goal.

Common strengths

are possessed by most or all organizations in a market and do not provide a competitive advantage. For example, if all large retailers can purchase merchandise from wholesalers at the same bulk discount, then this is a common strength.

Distinctive competencies

are possessed by only one or a few organizations, and they give the organizations that have them a competitive advantage. For example, if a technology company employs several engineers who are innovative leaders in certain kinds of development, this workforce is a distinctive competency of that company.

competitive disadvantage

Weaknesses give an organization a ________, and it can expect to achieve lower than average performance.

introduction stage

When a successful product or service is introduced demand begins to grow. The organization needs to focus on increasing production while maintaining quality. Managers are hiring more employees and managing inventory and cash flow.

strategic business units (SBUs).

When an organization operates multiple businesses, the different businesses or sets of related businesses are called

low

When the level of rivalry, the power of suppliers and buyers, and the threat of substitutes and new entrants are _____, an organization has many opportunities and relatively few threats.

High

When the level of rivalry, the power of suppliers and buyers, and the threat of substitutes and new entrants are _______, an organization finds few opportunities and faces many threats.

strategy

a comprehensive plan that describes the set of alternatives from which an organization chooses as it seeks to achieve its goals.

home replication strategy

a firm transfers what it does exceptionally well in its home market to foreign markets in order to achieve similar success there.

program

a plan for a large number of activities. For example, a company may develop a program for launching a new product.

strategic management

a thorough, ongoing process for developing and implementing strategies.

effective strategy

aligns the organization with its environment and positions it to achieve strategic goals.

differentiation strategy

an organization makes products or services of high quality to distinguish them from those of its competitors. Customers are willing to pay more for these products/services. Advertising that highlights features of a product/service is aimed at creating a perception of high quality, and thus differentiation, among consumers.

dogs

are businesses with a small share of a market that is stable or declining. A manager will not invest in a dog and may even divest it.

Organizational threats

aspects of the environment that make achieving high performance more difficult.

scope

describes the types of markets in which the organization will compete. A company, for example, might choose to manufacture casual sports attire; manufacture sports equipment; or manufacture sports attire and equipment, and operate sports arenas. Those are all different scopes of strategy.

single use plans

developed to address situations that probably will not occur again.

standing plans

developed to carry out activities that the organization needs to perform repeatedly.

Contingency planning

formulates a different course of action to be taken if the original plan is no longer feasible.

stars

have a large share of a rapidly growing market. Managers use profits from cash cows to invest in stars.

cash cows

have a large share of a stable market. They generate high profits without much investment.

question marks

have only a small market share but are in a rapidly growing market. If they can increase their market share, they have the potential to earn high profits. Managers may use profits from cash cows to invest in question marks as well.

resource deployment

how the organization will allocate various resources across the businesses competing in different markets. A financial services company might choose to invest more in retirement planning, invest less in mortgage lending, and withdraw completely from brick-and-mortar retail banking.

corporate-level strategy

identifies and prioritizes the industries and markets of interest.

four stages of volume changes over product lifetime

introduction, growth, maturity, decline

decision making

is the act of choosing one alternative from among a set of alternatives.

focus strategy

it concentrates on a particular region, product, or customer group. Within that area, the organization may pursue either a differentiation strategy or an overall cost leadership strategy.

executing tactical plans

managers continually evaluate how well the plan is helping the organization achieve the relevant goal, provide resources to the people carrying out the plan, coordinate activities in different parts of the organization so people don't work at cross-purposes, and monitor the progress of the plan's implementation.

crisis management action point 3

managers identify the signs that indicate a contingency event may be occurring, and they develop plans to reduce or avoid the risk. Then managers monitor the environment for these indicators.

multidomestic strategy

manages units in different countries as though they are fairly independent subsidiaries, operating like domestic businesses in their respective locations. This is most effective when national markets are very different, when there are few economies of scale to be realized, and when coordination between the parent corporation and foreign subsidiaries would be expensive. Decision making tends to be decentralized, giving managers in different countries a great deal of latitude.

Unprogrammed decisions

new and unstructured. In other words, it is not immediately clear what action should be taken. The manager must invest a great deal of capacity into understanding the situation and rely on intuition to make the decision. For example, as television executives decide how to handle the loss of market share to customers who prefer to stream shows via the internet, they are making a series of unstructured decisions, since this problem has never been solved before.

acquisition

occurs when a larger organization buys a smaller one. Organizations typically use mergers and acquisitions to enter complementary businesses that have a technology or customers in common, thereby gaining synergy.

merger

occurs when two companies of about the same size combine.

standard operating procedure (SOP)

outlines the steps to be followed under certain circumstances. For example, the library might have an SOP that addresses how donated books are evaluated and processed.

BCG matrix

rates businesses by their market share and the growth of that market. stars, question marks, cash cows, dogs

growth stage

sales continue to grow while other firms enter the market. In addition to ensuring a good customer experience through quality and reliable delivery, organizations may seek to differentiate their product/service from those of competitors.

overall cost leadership strategy

seeks to reduce costs so it can charge lower prices than its competitors and still make a profit. Advertising that highlights low prices is communicating this strategy to consumers.

Tactical goals

set by and for middle managers. They state how to achieve the strategic goals (e.g., to increase market share, we will add desirable features to our products each year for the next three years).

Strategic goals

set by top management to guide top managers' performance. They are broad in scope (e.g., to increase market share by 10 percent each year for the next three years).

Organizational strengths

skills and capabilities that allow an organization to formulate and implement its strategies. There are two kinds of strengths:

Organizational weaknesses

skills and capabilities that do not allow an organization to use effective strategies, and may even inhibit effective strategy.

project

smaller in scope and less complex than —and may even be part of— a program. For example, a project would develop the web pages that allow customers to learn about and purchase the new product.

distinctive competence

something the organization does very well—better than its competitors. For example, if a technology company designs software with a better user interface (UI) than competing software, it has a distinctive competence in UI.

state of risk

the availability of each alternative and its pros and cons have associated probability estimates. For example, a corporate supplies buyer knows that buying a single laptop costs a certain amount, whereas buying at least 10 laptops gets a 20 percent discount but requires a much larger total expenditure. Based on experience, the buyer believes the company will probably (80 percent chance) need at least 10 laptops in the next few months and, therefore, spending the money for a bulk purchase to get the discount is worthwhile. However, if the buyer is mistaken (20 percent chance), the company will have tied up a lot of cash in laptops it doesn't need.

state of certainty

the manager has a thorough understanding of the alternatives. A state of complete certainty is rare in the business world.

state of uncertainty

the manager knows neither all the alternatives, nor their associated risks, nor their likely outcomes. The risk of making a mistake is high in this condition. In today's highly dynamic business environment, a state of uncertainty dominates the decision-making landscape, especially for high-level managers setting strategy.

diversification

the number and diversity of businesses in which an organization is engaged. A company with a large number of businesses with little relationship to each other has high diversification. A firm with a small number of businesses or businesses that are closely related has low diversification.

crisis management action point 4

the organization has successfully carried out either its original plan or its contingency plan.

crisis management action point 1

the organization is making its strategic, tactical, and operational plans, and managers consider possible contingencies.

crisis management action point 2

the organization puts its plans into place, and the highest-risk contingencies are defined.

Optimizing

the process of balancing and reconciling conflicts among goals

crisis management

the set of procedures the organization uses to respond to a disaster

strategic imitation

to gain the same distinctive competency

global strategy

views the world as a single marketplace. The organization's goal is to produce standardized goods and services that address the needs of customers everywhere. This strategy is well suited to realize economies of scale. Decision making tends to be centralized.