COB 487 Exam 1

Learning and Growth Measures

- "Can we continue to improve and create value?" - relate to the future. Such measures provide insight to tell the organization, - focus on innovation and proceed w/ an understanding that strategies change over time - developing new ways to add value will be needed as the org continues to adapt to an evolving environment ex: # of new skills learned by employees every year

Customer Measures

- "How do customers see us?" - relate to customer attraction, satisfaction, and retention. - ex: # of new customers & % of repeat customers

Financial Measures

- "How do we look to shareholders?" - relate to organizational effectiveness and profits ex: financial ratios: ROA, ROE, ROI & profits/stock price - usually articulated & emphasized w/in an org's annual report to shareholders ----should be objective & coupled w/ meaningful referents, such as the firm's past performance

Internal Business Process Measures

- "What must we excel at?" - relate to organizational efficiency - ex: the time it takes to manufacture the org's good or deliver a service

King Arthur and his Knights of the Round Table

- Arthur allegedly considered himself and each of his knights to have an equal say in plotting the group's strategy - demonstrated importance of a central mission to guide organizational strategy and actions

Ethics

- Attention to the need for executives to act ethically when creating strategies increased dramatically in the early 2000s when a series of companies such as Enron Corporation, WorldCom, Tyco, Qwest, and Global Crossing were found to have grossly exaggerated the strength of their performance. - Like ethics, the implications of international competition are of central interest to strategic management.

The Importance of Vision: Effective Strategic Leaders vs Poor Strategic Leaders

- Effective ones are able to inspire employees - help move the org. forward - Poor leaders struggle to rally their people and channel their collective energy in a positive direction

Types of CEOs

- Icons - Scoundrels - Hidden gems - Silent Killers

Types of measures

- Liquidity measures - Leverage measures - Profitability measures

Lessons offered by Military Strategy

- Machiavelli's "The Prince" offers clever recipes for success to government leaders -- quite devious - American Revolution - demonstrated potential value of strategic alliances (help from French navy) - Civil War -- the Union possessed greater resources, such as factories and railroad lines although Confederacy had better generals --> therefore, sometimes good strategies simply cannot overcome a stronger adversary

Strategy in Ancient Times

- Moses led fellow Hebrews out of enslavement in Egypt by delegating authority to other leaders who oversaw a group of people - Similarly, the demands of strategic management today are simply too much for a chief executive officer (the top leader of a company) to handle alone. Many important tasks are thus entrusted to vice presidents and other executives.

Triple Bottom Line: 3 Ps of People

- People - Planet - Profits

SWOT Analysis

- Strengths and weaknesses are assessed by examining the firm's resources, while opportunities and threats refer to external events and trends. - The value of SWOT analysis parallels ideas from classic military strategists such as Sun Tzu, who noted the value of knowing yourself as well as your opponent

Personal Benefits for Celebrity CEO

- They receive higher compensation and job perks than their colleagues - increased prestige power - "benefit of the doubt" when it comes to downturn firm performance or stock prices

Celebrity Rehabilitation

- When reputation takes a hit...honesty is the best policy. - They have to recognize they are in fact a celebrity

Plan: Business Model

- a business model should be a central element of a firm's strategic plan - it describes the process through which a firm hopes to earn profits - important aspect: providing customers with a good or service more cheaply than they can create it themselves.

Position

- a firm's place in the industry relative to its competitors - How you position your product/firm relative to other competitors? - firms can carve out a position by performing certain activities in a different manner than their rivals - deciding what a firm is not going to do is just as important to strategy as deciding what it is going to do - sometimes firms change positions which can be a risky move

Ancient China: Sun Tzu

- believed winning a battle without fighting is the best way to win

Benefits of CEO Celebrity

- can serve as an intangible asset for the CEO's firm and may increase opportunities available to the firm - may increase stock price, enhance a firm's image, and improve the morale of the employees and other stakeholders

What is the Environment?

- consists of the set of external conditions and forces that have potential to influence the org.

Two components of the environment

- general environment (macroenvironment) - industry (competitive environment)

The Balanced Scorecard

- helps organize the org's performance measures - helps managers resist the temptation to fixate on financial measures and instead monitor a diverse set of important measures ----help executives gain a general understanding of their organization's current level of achievement across a set of four important dimensions - idea is to provide a "balance" btw financial measures and other measures that are important for understanding organizational activities that lead to sustained, long-term performance

Pursuing the Vision and Mission through SMART Goals

- in addition to vision and mission, orgs need to create goals

Risks of CEO Celebrity

- increased attention means any gaps btw actual and expected firm performance are magnified - more media attention if CEO is involved in unethical or illegal issues

3) Strategy Formulation

- involves developing specific strategies and actions

Goals

- narrower aims that should provide clear and tangible guidance to employees as they perform their work on a daily basis

Measuring Performance Using the Triple Bottom Line

- popular framework to help executives understand an org's performance beyond profits alone, areas such as social responsibility - Emphasizes the 3 Ps of people

Mission Statements

- states the reasons for an org.'s existence - well-written ones effectively capture an org.'s identity and provide answers to the fundamental question "Who are we?" - captures the key elements of the org.'s past and present - should explain to stakeholders why they should support the organization by making clear what important role or purpose the organization plays in society

1) Understanding Strategy and Performance

- strategic management is both an art and a science, and it involves multiple conceptualizations of the notion of strategy drawn from recent and ancient history - leading strategically is needed if the firm is to achieve the longterm strong performance companies

Perspective

-working on the mindsets of stakeholders (customers, employees, stockholders, suppliers) - convincing them to favor the company - how executives interpret the competitive landscape around them - some strategists are willing to take a seemingly sour situation and see the potential sweetness, while other executives remain fixated on the sourness - Executives who adopt unique and positive perspectives can lead firms to find and exploit opportunities that others simply miss.

The Strategic Management Process

1) Understanding Strategy and Performance 2) Environmental and Internal Scanning 3) Strategy Formulation 4) Strategy Implementation

What are the 4 dimensions that are recommended for managers to gain an overview of the org's performance?

1) financial 2) customer 3) internal business process 4) learning and growth

Org. Performance Considerations (2)

1) performance measures 2) performance referents

Vision

An organization's vision describes what the organization hopes to become in the future. - a well-constructed one clearly articulates an org's aspirations - some org's don't have one or have visions that employees do not embrace - looks to the future

Icons

CEOs possessing both fame and strong reputations. The icon CEO combines style and substance in the execution of his or her job responsibilities

Scoundrels

CEOs who display high levels of relative fame but low levels of reputation - well known but vilified

Hidden gems

CEOs who lack fame but possess positive reputations - These CEOs toil in relative obscurity while leading their firms to success. - Their skill as executives is known mainly by those in their own firm and by their competitors. - In many cases, the firm has some renown due to its success, but the CEO stays unknown.

An important lesson of history

Do not make assumptions about what your adversary can and cannot do. - Executives who make similar assumptions about their competitors put their organizations' performance in jeopardy.

Measuring Performance

Earnings = Profits = Net Income

Comparing Firms: EBITDA

Earnings before interest taxes = operating income Depreciation Amortization

Stocks: EPS

Earnings per share = Net Income/# of shares outstanding - how much profit each share made

Limitations/Problems with Net Income?

Financial statements are static (backward looking/what happened), not looking into future, not taking into consideration co. size, equity, nor financial trends

Most famous example of strategy in ancient times: Trojan horse

Greek soldiers offered the horse to the Trojans as a gift - soldiers were hidden inside, led to a Greek victory - Trojan horse refers to gestures that appear on the surface to be beneficial to the recipient but that mask a sinister intent

Defining Strategy: The Five Ps described by Henry Mintzberg

It can be viewed as a: - plan - ploy - position - pattern - perspective

2) Environmental and Internal Scanning

Managers must constantly scan the external environment for trends and events that affect the overall economy, and they must monitor changes in the particular industry in which the firm operates

4) Strategy Implementation

One important element of strategy implementation entails crafting an effective organizational structure and corporate culture.

Stocks: P/E

Price/earnings per share - risk of investment vs. return on investment - how much growth there's potentially in the future - how much money you have to invest in company, before the company can match them with a dollar of profitability

Silent Killers

The CEOs are overlooked and ignored sources of harm to their firms - it may be too late before the poor ethics or incompetence of the silent killers is detected -- sometimes worst than scoundrels

A model that helps understand how firms compete with each other:

Value____________________ {Perceived Value} (customer side) Price____________________ {Profit} (business side) Cost____________________(Expense)

Key tool available to executives to inspire ppl in an org.

Vision

Plan

a carefully crafted set of steps that a firm intends to follow in order to be successful - strategic plans are the essence of strategy - "Because the landscape of business changes rapidly, other ways of thinking about strategy are needed." - 95% when talking about strategy

Performance measure

a metric along which orgs can be gauged - measures such as profit, stock price, and sales --> helps understand how org. is competing in the market

Ploy

a specific move designed to outwit or trick competitors - often involve using creativity to enhance success - strategy as misdirection, ex: release ambiguous info (Apple is popular for this) - don't want to mislead shareholders

Relationship between vision and mission

an org. is more effective to the extent that its vision and mission target employees' effort in the same direction

Emergent strategy

an unplanned strategy that arises in response to unexpected opportunities and challenges - sometimes they result in disasters or tremendous success

A goal is measurable to the extent that whether the goal is achieved can...

be quantified

Industry (competitive environment)

consists of multiple orgs that collectively compete with one another by providing similar goods, services, or both

Goals should be time-bound through the...

creation of deadlines - they are motivating and help you structure your work time

Where does value come from?

data - tangible source (measurable) - ex for cars: safety, lifespan, mi/gallon intangible source (brands/reputation, appearance, emotional relationship)

Why is it a challenge to understand the multidimensional nature of org. performance?

different measures and referents may tell a different story about the org.'s performance - ex: there could be exceptional growth in sales and stock price but also losses rather than profits - Metaphor - the story of the blind men and the elephant shows the complexity of measuring org. performance

Why is using a variety of performance measures and referents valuable?

different measures and referents provide different info about an org's functioning

Perceived Value

drives our purchasing behavior - we buy where the spread between value and price is highest - customer side

What is Strategic Management?

examines how actions and events involving top executives, firms, and industries influence a firm's success or failure. - mastering strategy is therefore part art and part science

A goal is specific if it is...

explicit rather than vague

Stock price is...

forward looking - trying to assess the future earning of company

Profitability measures

helpful for understanding how much profit, if any, is really being made Key measure: net income (income after taxes)

Leverage measures

helpful for understanding if debt level is too high - the term leverage refers to the extent to which borrowed money is used Key measure: debt-to-equity ratio

Liquidity measures

helpful for understanding if obligations can be paid when due Key measure: current ratio (current assets/current liabilities)

Value

how much value you get from buying a good or service?

When an organization's environment is stable and predictable, strategic planning can provide enough of a strategy for the organization to gain and maintain success,

however only a few executives experience that.

General environment (macroenvironment)

includes overall trends in society such as social trends, technological trends, demographics, and economic conditions

Strategic management

is a process that involves building a careful understanding of how the world is changing, as well as a knowledge of how those changes might affect a particular firm. - CEOs must be able to carefully manage the possible actions that their firms might take to deal with changes that occur in their environment

Price

leading sources of value, important signal of value

Low P/E?

low expected growth, low risk

Planet

making sure organizations act in a way that promotes environmental sustainability - Environmental concerns

People

making sure that the actions of the org are socially responsible - Social concerns

Performance referents

needed to assess whether an org. is doing well - a benchmark used to make sense of an org.'s standing along a performance measure - executives need to choose a rich yet limited set of performance measures and referents to focus on

Frederick W. Taylor

published "The Principles of Scientific Management" - stressed how organizations could become more efficient through identifying the "one best way" of performing important tasks - Although many later works disputed the merits of trying to find the "one best way," Taylor's emphasis on maximizing organizational performance became the core concern of strategic management as the field developed.

Organization Performance:

refers to how well an org. is doing to reach its vision, mission, and goals - vital aspect of strategic management - helps determine whether strategic changes need to be made

Nonrealized strategy

refers to the abandoned parts of the intended strategy

Stocks: Market Cap

share price x shares outstanding - the value of the company, how much the market believes the firm is worth

A goal is aggressive if achieving it presents a...

significant challenge to the organization - performance is strongest when goals are challenging but attainable - these types of goals force ppl to test and extend the limits of their abilities

A goal is realistic if...

the achievement is feasible - unrealistic goals discourage ppl

Profit

the business side - give customers a good perceived value while maintaining profit

Pattern

the degree of consistency in a firm's strategic actions - What you do? - How you respond?

Stocks are from the view of?

the owners...what's best for them? - Shareholder Approach

Realized Strategy

the strategy that an org. actually follows - a product of a firm's intended strategy (what the firm planned to do), the firm's deliberate strategy (the parts of the intended strategy that the firm continues to pursue over time), and its emergent strategy (what the firm did in reaction to unexpected opportunities and challenges).

Intended strategy

the strategy that an organization hopes to execute - usually described in detail within an org.'s strategic plan

Personal Risks for Celebrity CEO

they face increased personal media scrutiny

What are the most effective goals?

those that are specific, measurable, aggressive, realistic, and time-bound (SMART)

Profits

traditional organization profits - Economic concerns

Business plan:

when a strategic plan is created for a new venture

High P/E?

while risky, market believes it can take off in future