Principles of management - Chapter 4

OST

(OST) Objectives, strategies, tactics, system

Economics of Scope

economics in which materials and processes employed in one product can be used to make related products

What two ways can companies gain competitive advantage?

1 Attempt to be unique in some way by pursuing a differentiation strategy or 2 they can focus on efficiency and price by pursuing a low-cost strategy

Strategy Implementation

1 Define strategic tasks, 2 assess organization capabilities, 3 develop agenda, 4 create implementation plan

How do firms become true learning organizations?

1 Engaging in disciplined thinking and paying attention to details 2 searching constantly for new knowledge and ways to apply it 3 valuing and rewarding individuals who expand their knowledge 4 reviewing successes and failures carefully 5 bench-marking identifying and implementing the best business practices 6 sharing ideas throughout the organization via reports, info systems, informal discussions, site visions, education, training

Formal planning steps

1 Situational analysis, 2 alternative goals and plans, 3 goal and plan selection, 4 implementation, 5 monitor and control

6 major components of strategic management

1 establishment of mission, 2 analysis of external opportunities and threats, 3 analysis of internal strengths and weakness, 4 SWOT analysis and strategies, 5 strategy implantation, 6 strategic control

Resources are a source of competitive advantages

1 if resource is instrumental for creating customer value 2 a source of advantage if they are rare 3 difficult to imitate 4 enhance a firms competitive advantage when well organized

2 categories of resources

1 tangible assets like real estate and raw materials, 2 intangible such as company reputation

The 5 questions for effective strategy

1 where will we be active, 2 how will we get there, 3 how will we win the marketplace 4 how fast will we move in what sequence 5 how will we obtain financial returns

Differentiation Strategy

A company attempts to be unique in its industry or market segment along some dimensions that customers value. Based on high product quality, excellent marketing and distribution or superior service.

Strategic alliance

A formal relationship created among independent organizations with the purpose of joint pursuit of mutual goals.

Scenario

A narrative that describes a particular set of future conditions

Strategy

A pattern of actions and resource allocations designed to achieve the organization's goals.

Core capability

A unique skill or knowledge an organization possesses that gives and edge over competitors

How do managers manage resources?

Accumulate the right resources (such as talented people), combine the resources in ways that give the organization capabilities, such as researching new products/resolving problems for the customers, and leverage or exploit their resources to identify the opportunities where their competencies deliver value to their customers.

Plan

Actions or means the manager intends to use to achieve goals.

Core Capability

Also referred to as competence is something a company does especially well relative to its competitors.

Second Step in Strategic management

Analysis of external opportunities and threats

Third Step in Strategic management

Analysis of internal strengths and weaknesses

Rightsizing

Arrival at the size at which the company performs most effectively

Low cost strategies

Attempt to be efficient and offer a standard, no-frills product. Often are large companies and try to take advantage or the economics of scale in production or distribution. In many cases, their scale allows them to buy and sell at a lower price which leads to higher market share, volume and profits. Usually require low production costs.

Strategic planning

Becomes an ongoing activity in which all managers are encouraged to think strategically and focus on long term externally oriented issues as well as short term tactical and operational issues. A time horizon from 3-7 years. Making decisions about an organizations long term goals and strategies. Senior executives are responsible for the development and execution but usually don't formulate or implement entire plan personally

Situational Analysis

identifying the and diagnosing problem

Intermediate customers

Buy raw materials or wholesale products and then sell to final customers

Small companies

Can move fast, provide quality goods and services to targeted market niches, and inspire greater involvement from their people. May improve speed.

Mission

Clear, conscience expression of the basic purpose of the organization

Competitor Analysis

Competitor profile (major competitors), competitor analysis (goals, strategies, etc), competitor advantages (degree to which industry competitors have differentiated their products or services or achieved cost leadership

Barriers to Entry

Conditions that prevent new company for entering industry

What-if plans

Contingency plans

conglomerate (unrelated) diversification

Corporate strategies that involves expansion into unrelated businesses. Diversified business are also known as business portfolio

Summarize the types of choices available for corporate strategy

Corporate strategy identifies the breadth of a firm's competition domain. Can be kept narrow as in a concentration strategy or can move to suppliers and buyer via a vertical integration. Corp strategy can broaden a firm's domain via concentric (related) diversification or conglomerate (unrelated) diversification.

Size

Creates scale economics, lower costs per unit of productions

Final Customer

Customers who purchases products in the final form

Business Strategy

Defines the major actions by which an organization builds and strengthens its competitive position in the marketplace.

Value of Diversified Corporate Strategy

Depends on the individual circumstances.

First Step in Strategic management

Establishment of mission, vision and goals

Typical strategic goals include:

Growth, increasing market share, improving profitability, boosting return on investment, fostering both quantity and quality of outputs, increasing productivity customer service and contributing to society

BCG Matrix

Each business in the corp is plotted on the matrix on the basis of growth rate of its market and the relative strength of its competitive position in that market.

Macroeconomic Analysis

Economic factors that affect supply, demand, growth, competition and profitability within the industry

Strategic goals

Evolve from the mission and vision of the organization. CEO, with inputs from board of directors, establishes mission, vision and major strategic goals.

Other Internal Resource Analyses

Examine, as necessary, the strengths and weaknesses of other organizational activities such as R&D, management information systems, engineering and purchasing

Other internal resource analyses

Examine, as necessary, the strengths and weaknesses of other organizational activities such as R&D, management information systems, engineering and purchasing

Marketing audit

Examines strengths and weakness of major marketing activists and identifies markets, key market segments, and competitive position of organization and key markets

Human resources assessment

Examines strengths and weaknesses of all levels of management and employees and focus on key HR activities

Human Resources Assessment

Examines strengths and weaknesses of all levels of management and employees and focuses on key HR activities.

Marketing Audit

Examines strengths and weaknesses of major marketing activities and identifies markets, key market segments and the competitive position (market share) of the organization within key markets

Financial Analysis

Examines strengths and weaknesses through financial statements such as a balance sheet and income statement and compares trends to historical and industry figures

Operational analysis

Examines the strengths and weakness of the manufacturing and production or service delivery activities of the organization

Operations Analysis

Examines the strengths and weaknesses of the manufacturing, production or service delivery activities of the organization.

vertical integration

Expanding the domain of the organization into supply channels or to distributors. Companies that operate vertically often do so to reduce their costs

Internal resource audit

Financial analysis, marketing audit, operations analysis, other internal resource analyses, human resource assessment

Financial analyses

Financial strengths and weakness through financial statements such as balance sheets and income statements and comparative trends

Internal Resource Analysis

Financial, Marketing, Operational, Other Internal Resources (R&D), HR. This type of analysis gives strategic decision makers an inventory of the organization's existing functions, skills and resources as well as its overall performance levels.

What can be done to manage downsizing effectively or help make it more effective?

Firms should avoid excessive (cyclical) hiring to help reduce the need to engage in major or multiple downsizing, avoid common mistakes such as making slow, small, frequent layoffs; implementing voluntary early retirement programs that entice the best people to leave

Switching Costs

Fixed costs buyers when they change suppliers

Tactical planning

Focus on major actions a unit must take to fulfill the plan, Translates broad strategic goals and plans into specific goals and plans, Serves as the foundation for planning done by middle level front line managers

concentration strategy

Focuses on a single business competing in a single business industry

Mechanistic Organization

Form of organization that seeks to maximize internal efficiency

Planning

Formal expression of managerial intent

Management level of operational

Frontline manager with high detail less than one year

Planning process stage

Gather, interpret and summarize all information

Bench-marking

Goal is to understand the "best practices" of other firms thoroughly and to undertake actions to achieve both better performance and lower costs. Aligning a firms bottom line practices with best practices can improve its competitiveness.

Stakeholders

Groups and individuals who affect and are affected by the achievements of the organization's mission, goals and strategies. They include buyers, suppliers, competitors, government and regulatory agencies, unions, and employee groups.

Question Marks

High Growth, weak competitive positions businesses. Substantial investment to improve their position; otherwise divestiture is recommended.

Stars

High growth, strong competitive position businesses. Requires heavy investment but their strong positions allow them to generate the needed revenues.

corporate strategy

Identifies the sets of businesses, markets, or industries in which the organization competes and the distribution of resources among those businesses.

Managers who want to strengthen their firm's competitiveness via core capabilities should focus on

Identify existing core capabilities, acquire or build core capabilities that will be important for the future, keep investing in capabilities so that the firm remains world class and better than competitors, extend capabilities to find new applications and opportunities for the markets of tomorrow

General decision making steps

Identifying and diagnosing the problem, generate alternative solutions, evaluating alternatives, making the choice, implementing, evaluation

Functional Strategy

Implemented by each functional are of the organization to support the business strategy (Production, HR, marketing, R&D, finance, and distribution). Typically developed by the functional area executives with input of and approval from the executives responsible for the business strategy.

Supply Chain Management

The managing of the network of facilities and people that obtain materials from outside the organization, transform them into products and distribute them to customers right product/right quantities/right place/right cost

Environmental Analysis

Industry and Market Analysis, Competitor Analysis, Political and Regulatory Analysis, Social Analysis, HR Analysis, Macroeconomic Analysis and Technological Analysis. Should examine is forecasting future trends. Judgement is susceptible to bias and managers have limited ability to process information

Industry and Market Analysis

Industry profile (major product lines), industry growth (entire industry and key market segments), industry forces (threats of new industry entrants)

Resources

Inputs that can be accumulated over time to enhance the performance of a firm

Effective vision statements

Inspire, offer a worthwhile target for entire organization to work together

Strategic management

Involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies

High Quality Strategy

Is often more difficult for competitors to imitate

Define core capabilities and explain how they provide the foundation for business strategy

Is something a company does especially well relative to its competitors. It can provide a sustainable advantage if it's valuable, rare, difficult to imitate and well organized.

Downsizing

Is the planned elimination of positions or jobs. Common approaches include eliminating functions, hierarchical levels, or even whole units

Human Resources Analysis

Labor issues, key labor needs, shortages, opportunities

Political and Regulatory Analysis

Legislation and regulatory activities and their effects on the industry, political activity the level the industry undertakes

Survivor's syndrome

Loss of productivity and moral in employees who remain after downsizing

Dogs

Low Growth, weak competitive positions businesses. The remaining revenues from these businesses are realized and the then the businesses are divested.

Cash Cows

Low growth, strong competitive position businesses. Generate revenues in excess of their investment needs and therefore fund other businesses.

Strategic goals

Major targets or results that relate the the long term survival value and growth of the organization

Strategic triangle

Managers need to balance by meeting customer requirements better than competitors do.

M&A

Mergers and Acquisitions. The targets chosen depend on the organization's corporate strategy of either concentrating in one industry or diversifying its portfolio.

Strategy map

Method for aligning the organization's strategic and operational goals by providing a tool managers can use to communicate their strategic goals

Large companies

Market share grows, customers begin to view their products as having lower quality, future growth is complicated because winning over more customers, more difficult to coordinate and control.

Management level of tactical plan

Middle manager with medium detail for 1-2 years

Strategic decision making

Most exciting and controversial topics in management

concentric (related) diversification

Moving into businesses that are related to the companies original core business

Customer relationship management (CRM)

Multifaceted process, typically meditated by a set of information technologies, that focuses on creating two way exchanges with customers so that firms have an intimate knowledge of their needs.

Strategic, tactical and operational goals

Must be consistent, mutually supportive, and focused on achieving common purpose and direction

Competitive Environment Model

New Entrants, Suppliers, Substitutes & Complements, Customers, Rival Firms

Organic Structure

Organization form that emphasizes flexibility.

Strategic vision

Points to the future and provides a prospective on where the organization is headed and what it can become

How does the value chain add value in each step?

R&D focus on innovation and new products, inbound logistics receive and store raw material, operations transform the raw materials into final product, outbound logistics warehouse the product, marketing and sales identify customer requirements, service offers customer support such as repair.

SWOT

Strengths, weaknesses, opportunities, threats, helps executives formulate a strategy. Helps managers summarize the relevant important facts from their external and internal analyses.

Fourth Step in Strategic management

SWOT analysis and strategy and formulation

Technological Analysis

Scientific or technical methods that affect the industry particularly recent and potential innovations

Value chain

Sequence of activities that flow from raw materials to the delivery of a good or service, with additional value created at each step

In setting a strategy, mangers try to match the organizations __________ and ___________ to the opportunity in the in the external environment

Skills and resources

Social Analysis

Social issues (current and potential), social interest groups (consumer, environmental, that attempt to influence the industry)

SMART

Specific goals, measurable, achievable, relevant, time-bound

Operational planning

Specific procedures and processes required at lower levels. Focus on routine tasks schedules and HR

Situational Awareness

Step 1 in the Planning process stage examines influences from external environment, examines current conditions and attempts to forecast future trends, outcome is the identification and diagnosis of planning assumptions, issues, and problems and helps decide whether to proceed with the next step.

Alternative Goals and Plans

Step 2 in the Planning process when you evaluate advantages, disadvantages, potential effects of each alternative goal and plan, prioritize or eliminate goals, consider implications of alternative plans for meeting high priority goals, pay a great deal of attention to the cost of any initiative and the investment return

Goal and Plan Selection

Step 3 in the Planning Process - identify the priorities and trade-offs among the goals and plans. Experienced judgment always plays an important role. A formal planning process leads to a written set of goals and plans for a particular set of circumstances. Manager will also be prepared to switch to another set of plans if the situation changes.

Implementation

Step 5 in the Planning Process - once managers have selected goals and plans, managers and employees must understand the plan, have resources and motivation, some have incentive programs to achieve goals and plans properly, to be successful requires a plan to be linked to other systems in the organization, particularly the budget and reward system

Monitor and Control

Step 6 in the Planning process - sometimes ignored but essential, without this stage you will never know if the plan is succeeding, measures performance and allow for corrective action

Two budget process

Strategic and operational using the (OST) Objectives, strategies, tactics, system

Sixth step in Strategic management

Strategic control

Describe how strategic planning should be integrated with tactical and operational planning

Strategic planning involves long term decisions about the entire organization. Tactical planning translates broad goals and strategies into specific actions to be taken to different parts of organization. Operational planning identifies the specific short term procedures and process required at a lower level of the organization.

Identify elements of the external environment and internal resources of the firm to analyze before formulating a strategy

Strategic planning is designed to leverage the strengths of a firm while minimizing the effects of its weaknesses. It's difficult to know the advantage a firm may have unless external analysis is done well.

Fifth Step in Strategic management

Strategy implementation

Describe the keys to effective strategy implementation

Strategy must be supported by structure, tech, HR, rewards info systems, culture, and leadership. The success of a plan depends on how well employees at low levels are able and willing to implement it. Participative management is one of the more popular approaches executives use to gain employees' input and ensure their commitment to strategy implementation.

Strategic planning

Strong external orientation and cover major portions of the organization

Strategic control

System designed to support managers in evaluating the organization's progress with its strategy and, when discrepancies exist, taking corrective action. Must encourage efficient operations that are consistent with the plan while allowing flexibility to adapt to changing conditions. Most include a budget to monitor and control major financial expenditures.

Goal and plan evaluation

evaluating alternatives

Monitor and control

evaluation

Alternative goals and plans

generating alternative solutions

Diseconomies of sale

The cost of being too big. "Small is beautiful" has become a favorite phrase of entrepreneurial business managers

Summarize the basic steps in the planning process

begins with situational analysis of the external and internal forces affecting the organization. This helps identify issues and problems and may bring alternative goals and plans. Next advantages and disadvantages should be evaluated against each other. Once goals and plans selected, implementation involves communicating the plan, allocating resources and making certain other systems support the plan. Institute control systems to monitor progress toward the goals

Management level of strategic plan

Top level manager, low detail for 3-7 years

High-Involvement Organization

Top management ensures that there is a consensus about the direction in which the business is heading.

What positive practices can firms use to ease the pain and increase the effectiveness of downsizing

Use downsizing as the last resort, choose positions to be eliminated by engaging in careful analysis and strategic thinking, train people to cope, identify and protect, give special attention and help to those who have lost their jobs, communicate constantly with people about the process, identify how the organization will operate more effectively in the future.

Strategy budget

Used to create and maintain longer-term effectiveness

Operational budget

Used to tightly monitor and achieve short term efficiency

Alliances

can increase speed and innovation and lower costs

kaizen

continuous improvement, a company attains and retains competitive advantage by continuing to improve.

Why do companies form strategic alliances?

develop new technologies, enter new markets and reduce manufacturing costs.

Learning organization

is an organization skilled at creating, acquiring, and transferring knowledge and modifying its behavior to reflect new knowledge and insights and are skilled at solving problems

Goal and plan selection

making the choice

Size of the organization

one of the most important characteristics of an organization and one one of the most important factors influencing its ability to respond effectively to its environment

customer now

refers to the next process, wherever the work goes next