Strat Exam 2

Centralized Decision making: Pros & Cons

*Pros*: 1. easy to know who is accountable when things do not go well. 2. reduces the potential for conflicting decisions & actions among lower level managers. 3. can facilitate strong leadership from the top in a crisis situation. *Cons:* 1. doesn't encourage responsibility & initiative from low level managers & employees.

Decentralized Decision making: Pros & Cons

*Pros:* 1. employees encouraged to exercise initiative. 2. shortens organizational response times to market changes. *Cons:*Top managers lose an element of control of actions being taken by personnel under their supervision

*How corporate culture supports the strategy execution effort (3)*

1. *Focusing employee attention* on the actions that are *most important* in the strategy execution effort. 2. By *inducing peer pressure* for employees to contribute to the success of the strategy execution effort. 3. By *energizing employees*, deepening their commitment to the strategy execution effort, & increasing the productivity of their efforts.

Changing a Problem Culture 4 steps:

1. *Identify facets of the present culture that are dysfunctional* & impede good strategy execution. 2. *Specify clearly what new actions*, behaviors & work practices should *characterize the new culture*. 3. *Talk openly about problems* with the current culture & make a persuasive case for cultural reform. 4. Follow with visible, forceful actions-both *substantive & symbolic* to ingrain a new set of behaviors, practices & norms.

*How Policies and Procedures Facilitate Good Strategy Execution (3)*

1. *Provide top-down guidance* about how certain things need to be done. 2. *Help enforce consistency* in how strategy-critical activities are performed. 3. Promote the *creation of a work climate* that facilitates good strategy execution

A company's 4 Main Strategic Alternatives after It Diversifies:

1. *Stick Closely* with the Existing Business Lineup 2. Broaden the Diversification Base 3. *Divest* Some Business & *Retrench* to a Narrower Diversification Base 4. *Restructure* the Company's Business Lineup *through a Mix of Divestitures & New Acquisitions*

*2 best signs of good strategy execution*

1. A company is meeting or beating its performance targets. 2. Performs value chain activities in a manner that is conducive to companywide operating excellence.

Powerful Management Tools for operating excellence & better strategy execution (4)

1. Benchmarking 2. Total Quality Management (TQM) 3. Six Sigma Programs 4. Business Process Reengineering (BPR)

2 Distinctive traits of an adaptive culture:

1. Changes in operating practices & behaviors must *not* compromise core values & long-standing business principles. 2. changes that are instituted must *satisfy the legitimate interests of key constituencies.*

Action steps managers can take to realize full value from TQM or Six sigma to promote a culture of operating excellence (5)

1. Demonstrate visible, *unequivocal, & unyielding commitment* to total quality & continuous improvement. 2. Nudging people toward quality supportive behaviors. 3. *Empowering employees* so that authority for delivering great service/improving products is in the hands of the doers rather than the overseers. 4. *Using online systems* to provide all relevant parties with the latest best practices, thereby speeding the diffusion & adoption of best practices throughout the organization. 5. *Emphasizing* that performance can & *must be improved.*

*6 steps to analyze how good a company's diversification strategy is:*

1. Evaluate the *long-term attractiveness* of the industries into which the firm has diversified. 2. Evaluate the *relative competitive strength* of each of the company's business units. 3. *Check for competitive value* of cross-business strategic fit. 4. Check whether the firm's *resources fit the resource requirements* of its present business lineup. 5. *Rank the performance prospects of the business* from best to worst, & determine what the corporate parent's priority should be in allocating resources to its various businesses. 6. *Craft new strategic moves* to improve overall corporate performance.

2 roles of a company's stated core values & ethical principles:

1. Foster a work climate where company *personnel share common & strongly held convictions* about how the company's *business* is to be *conducted.* 2. Provide company personnel with *guidance about how to do their jobs*, steering them toward both *doing things right & doing the right thing.*

3 ways to access capabilities through Collaborative Partnerships:

1. Outsource the function in which the company's capabilities are deficient to a key supplier or another provider. 2. Collaborate with a firm that has complementary resources & capabilities in any form of partnership established for the purpose of achieving a shared strategic objective. 3. Engage in a collaborative partnership for the purpose of learning how the partner does things, internalizing its methods & thereby acquiring its capabilities.

Misguided reasons for pursuing unrelated diversification (4)

1. Risk reduction 2. Growth 3. Stabilization 4. Managerial motives

Embedding Behavioral Norms in the Organization & perpetuating the Culture Techniques (8)

1. Screening applicants & *hiring those who will mesh well with the culture.* 2. Incorporating *discussions* of the company's *culture* & behavioral norms into *orientation programs* for new employees. 3. Having *senior executives* frequently reiterate the *importance & role of company values* & ethical principles at company events & in internal communications to employees. 4. Expecting *managers at all levels to be cultural role models* & exhibit the advocated cultural norms in their own behavior. 5. Making the display of *cultural norms a factor in evaluating each person's job performance,* granting compensation increases, & deciding who to promote. 6. Stressing that line *managers all the way down* to first-level supervisors *give ongoing attention to desired cultural traits* & clarifying why they are important. 7. Encouraging *company personnel* to exert *strong peer pressure on co-workers* to conform to expected cultural norms. 8. Holding *periodic ceremonies* to honor people who *excel in displaying the company values* & ethical principles.

*Building an organization capable of good strategy execution entails 3 types of actions:*

1. Staffing the organization. 2. acquiring, developing, & strengthening strategy supportive resources & capabilities. 3. Structuring the organization & work effort.

*Tests of Corporate Advantage*

1. The industry attractiveness test 2. The cost-of-entry test 3. The better-off test

Key features of a Company's Corporate Culture (8)

1. The values, *business principles*, & ethical standards *that management preaches & practices.* 2. The company's *approach to people management* & the official policies, procedures, & operating practices *that provide guidelines* for the *behavior of company personnel.* 3. The *atmosphere & spirit* that pervades the *work climate*. 4. How *managers & employees* interact & *relate* to one another. 5. The *strength of peer pressure* to do things in particular ways & conform to expected norms. 6. The *actions & behaviors* that management explicitly *encourages & rewards* those that are frowned upon. 7. *The company's revered traditions* & oft-repeated stories about "heroic acts" & "how we do things around here." 8. The *manner* in which the company *deals with external stakeholders.*

2 factors that contribute to the development of strong cultures:

1. a founder or strong leader who established core values, principles, & practices that are viewed as having contributed to the success of the company. 2. a sincere, *long-standing company commitment* to operating the business *according to* these established *traditions & values.*

*Entry into new businesses can take any of 3 forms:*

1. acquisition 2. internal startup 3. joint venture

*5 types of unhealthy cultures*

1. change resistant 2. heavily politicized 3. insular & inwardly focused 4. ethically unprincipled & infused with greed 5. composed of it incompatible, *clashing subcultures.*

*Structuring the organization & organizing the work effort in a strategy supportive fashion has 4 aspects:*

1. deciding which value chain *activities to perform internally* & which ones to *outsource.* 2. *aligning* the firm's *organizational structure* with its strategy. 3. *deciding how much authority* to centralize at the top & how much to delegate to down the line managers & employees. 4. *facilitating the necessary collaboration* & coordination with external partners & strategic allies.

*Building core competencies & competitive capabilities can be approached in 3 ways:*

1. developing capabilities *internally* 2. acquiring capabilities through *mergers & acquisitions.* 3. accessing capabilities via *collaborative partnerships.*

*An outstanding corporate parent can benefit its business through: (3)*

1. providing high-level oversight & making available other corporate resources. 2. allocating financial resources across the business portfolio. 3. restructuring underperforming acquisitions.

*leading the drive for good strategy execution & operating excellence calls for 3 actions on the part of managers in charge:*

1. staying on top of *what is happening* & closely monitoring progress. *(MBWA)* 2. Putting *constructive pressure* on the organization to execute the strategy well & achieve operating excellence. 3. Initiating *corrective actions* to improve strategy execution & achieve the targeted performance results.

*For an incentive compensation system to work well (6):*

1. the performance payoff should be a *major percentage of the compensation package.* 2. the use of incentives should *extend to all* managers & workers. 3. the system should be administered with *objectivity & fairness.* 4. each individual's performance targets should involve *outcomes* the person can *personally affect.* 5. rewards should *promptly follow* the achievement of performance targets 6. rewards should be *given for results & not just effort.*

*4 basic types of organizational structures:*

1. the simple structure 2. the functional structure 3. the multidivisional structure 4. the matrix structure. *most appropriate depends on the firm's size, complexity, & strategy.*

Disadvantages of a Vertical Integration Strategy (6)

1.) *Increased business risk* due to large capital investment. 2.) *Slow to adopt technological advances* or more efficient production methods. 3.) *Less flexibility* in accommodating shifting buyer preferences. 4.) May *not enable* a company to *realize economies of scale.* 5.) Capacity matching problems. 6.) Calls for *developing new* types of *resources & capabilities.*

*The 10 Principal Components of the Strategy Execution Process*

1.) *Staffing* the organization with managers & employees capable of executing the strategy well. 2.) *Developing the resources & organizational capabilities* required for successful strategy execution. 3.) *Organizational structure.* 4.) *Allocating sufficient resources* to the strategy execution effort 5.) *Instituting policies & procedures* that facilitate strategy execution. 6.) *Adopting best practices* & business processes to drive continuous improvement in strategy execution activities. 7.) *Installing information & operating systems* that enable company personnel to carry out their strategic roles proficiently. 8.) Tying *rewards & incentives* directly to the achievement of strategic & financial targets. 9.) *Instilling a corporate culture* that promotes good strategy execution. 10.) *Exercising strong leadership* to drive the execution process forward & attain companywide operating excellence as rapidly as feasible.

Choosing a Mode of Entry (4 questions)

1.) Does the company have all of the *resources & capabilities* it requires to enter the business through internal development, or is it lacking some critical resources? 2.) Are there *entry barriers* to overcome? 3.) Is *speed* an important factor in the firm's chances for successful entry? 4.) Which is the *least costly* mode of entry, given the company's objectives?

Best Targets for Offensive Attacks (4)

1.) Market leaders that are vulnerable. 2.) Runner-up firms with weaknesses in areas where the challenger is strong. 3.) Struggling enterprises that are on the verge of going under. 4.) Small local and regional firms with limited capabilities.

The principal offensive strategy options (7):

1.) Offer an equally good or better product at a lower price. 2.) *Leapfrog competitors* by being first to market with next-generation products. 3.) *Pursue continuous product innovation* to draw sales and market share away from less innovative rivals. 4.) *Pursue disruptive product innovations* to create new markets. 5.) *Adopt and improve* on the *good ideas of other companies* (rivals or otherwise). 6.) Use *hit-and-run or guerrilla marketing tactics* to grab market share from complacent or distracted rivals. 7.) *Launch a preemptive strike* to secure an industry's limited resources or capture a rare opportunity

What does crafting a diversification strategy entail? (3)

1.) Picking new industries to enter & deciding on the means of entry. 2.) Pursuing opportunities to leverage cross-business value chain relationships, where there is strategic fit, into competitive advantage. 3.) Initiating actions to boost the combined performance of the corporation's collection of businesses.

Conditions for First-Mover Advantages (5):

1.) When pioneering helps build a firm's reputation & *creates strong brand loyalty.* 2.) When a first-mover's *customers* will thereafter *face significant switching costs.* 3.) When *property rights protections* thwart rapid imitation of the initial move. 4.) When an early lead enables the first mover to *move down the learning curve* ahead of rivals. 5.) When a first mover can *set the technical standard* for the industry.

Diversification into unrelated businesses criteria: (3)

1.) Whether the business can meet corporate targets for profitability & return on investment. 2.) Whether the business is in an industry with *attractive growth potential*. 3.) Whether the business is *big enough to contribute significantly* to the *parent firm's bottom line.*

For successful backward integration, a company must be able to (2):

1.) achieve the same scale economies as outside suppliers. 2.) match or beat suppliers' production efficiency with no drop-off in quality.

Defensive Strategies usually take one of two forms:

1.) actions to block challengers. 2.) actions to signal the likelihood of strong retaliation.

Outsourcing can enhance a company's competitiveness when: (5)

1.) an activity can be performed *better or more cheaply* by outside specialists. 2.) the activity is *not crucial to* the firm's ability to achieve *sustainable competitive advantage.* 3.) the outsourcing *improves organizational flexibility*, speeds decision making, & cuts cycle time. 4.) it *reduces* the company's *risk* exposure. 5.) it permits a company to *concentrate* on its core business & focus on *what it does best.*

Advantages of a Vertical Integration Strategy (3)

1.) can add materially to a company's technological capabilities. 2.) strengthen the firm's competitive position. 3.) Boosts profitability.

Companies that manage their Strategic Alliances well generally (5):

1.) create a system for managing their alliances. 2.) *build relationships* with their partners & *establish trust*. 3.) *protect* themselves from the *threat of opportunism* by setting up *safeguards*. 4.) *make commitments* to their partners & see that their partners do the same. 5.) *make learning a routine* part of the management process.

Horizontal mergers & acquisitions strengthen a firm's competitiveness in 5 ways:

1.) improving the efficiency of its operations. 2.) heightening its product differentiation. 3.) reducing market rivalry. 4.) increasing the company's bargaining power over suppliers & buyers. 5.) enhancing its flexibility & dynamic capabilities.

Purpose of Defensive Strategies (3)

1.) lower the firm's risk of being attacked. 2.) weaken the impact of an attack that does occur. 3.) influence challengers to aim their efforts at other rivals.

5 objectives of Horizontal mergers & acquisitions

1.) lowering costs 2.) expanding geographic coverage 3.) adding product categories 4.) gaining new technologies or other resource capabilities 5.) preparing for the convergence of industries

When does Internal development have appeal? (5)

1.) the parent company already *has in-house most of the resources & capabilities* it needs to piece together a new business & compete effectively. 2.) there is *ample time to launch the business*. 3.) the *internal cost of entry is lower* than the *cost of* entry via *acquisition*. 4.) adding new production capacity will not adversely impact the supply/demand balance in the industry. 5.) incumbent firms are likely to be slow or ineffective in responding to a new entrant's efforts to crack the market.

Related diversification strategies that utilize strategic fit: (5)

1.) transferring skills or knowledge 2.) combining related value chain activities to achieve lower costs 3.) leveraging the use of a well-respected brand name 4.) sharing other valuable resources 5.) using cross-business collaboration & knowledge sharing to create new resources & capabilities & drive innovation.

2 drawbacks of Unrelated Diversification:

1.) very demanding managerial requirements 2.) limited competitive advantage potential

Strategic Offensives

Called for when a company spots opportunities to gain profitable market share at its rivals' expense or when a company has no choice but to try to whittle away at a strong rival's competitive advantage. *should exploit the power of a company's strongest competitive assets.* Attacks rivals' in the competitive areas where they are weakest.

*Unrelated Businesses*

Have dissimilar value chains and resource requirements, with no competitively important cross-business relationships at the value chain level. *general resources & capabilities.*

Acquisition

a combination in which one company, the acquirer, purchases & absorbs the operations of another, the acquired.

matrix structure

a combination structure that overlays one type of structure onto another type, with multiple reporting relationships. It is used to foster cross-unit collaboration.*Most complex structure*

What is the biggest danger of outsourcing a company?

a company will farm out the wrong types of activities & thereby *hollow out its own capabilities.*

network structure

a configuration composed of a number of independent organizations engaged in some common undertaking, with one firm typically taking on a more central role.

multidivisional structure

a decentralized structure consisting of a set of operating divisions organized along business, product, customer group, or geographic lines, and a central corporate headquarters that allocates resources, provides support functions, and monitors divisional activities.

Vertically integrated firm

a firm that performs value chain activities along more than one stage of an industry's value chain system. Expands the range of activities *backward* into sources of supply & *forward* toward end users.

Strategic Alliance

a formal agreement between 2 or more separate companies in which they agree to work cooperatively toward some common objective.

Ambidextrous organization

adept at employing continuous improvement in operating processes but allowing R&D to operate under a set of rules that allows for exploration & the development of breakthrough innovations.

Internal capital market

allows a diversified company to add value by *shifting capital* from business units *generating free cash flow* to those needing additional capital *to expand and realize their growth potential*

True

an effectively designed reward structure is the single most powerful tool management has for mobilizing employee commitment to successful strategy execution. (t/f)

Spin-off

an independent company created when a corporate parent divests a business either by selling shares to the public via an initial public offering or by distributing shares in the new company to shareholders of the corporate parent

cash hog

business generates *cash flows that are too small to fully fund its growth*; it thereby *requires cash infusions* to provide additional working capital and finance new capital investment

cash cow

business generates cash flows over and above its internal requirements, thus providing a corporate parent with funds for investing in cash hog businesses, financing new acquisitions, or paying dividends

synergy

businesses perform better together as part of the same firm than they could have performed as independent companies. 1+1=3 effect.

General resources & capabilities

can be *widely applied* and can be deployed across a broad range of industry and business types.

First-mover advantages and disadvantages

competitive advantage can spring from when a move is made as well as from what move is made.

organizational structure

comprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships by which the firm is administered.

simple structure

consists of a central executive (often the owner-manager) who handles all major decisions and oversees all operations with the help of a small staff.

umbrella brand

corporate brand name that can be applied to a wide assortment of business types.

Economies of Scope

cost reductions that flow from operating in multiple businesses (a larger scope of operation). *share costs by combining value chain activities*

strong-culture company

deeply rooted values and norms of behavior are widely shared and regulate the conduct of the company's business.

portfolio approach

ensuring financial fit among a firm's businesses is based on the fact that *different businesses have different cash flow and investment characteristics*

Total Quality Management (TQM)

entails creating a total quality culture, involving managers and employees at all levels, bent on continuously improving the performance of every value chain activity.

Strategic fit

exists whenever one or more activities constituting the *value chains of different businesses are sufficiently similar* as to present opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities.

Change- Resistant Cultures

fear of change & skepticism about the importance of new developments are the norm, place a premium on not making mistakes, prompting managers to *lean toward safe, conservative options* intended to maintain the status quo.

Joint Venture

forming a new corporate entity that is jointly owned by 2 or more companies that agree to share in the revenues, expenses, & control of the newly formed entity.

Specialized resources & capabilities

have very *specific* applications and their use is limited to a restricted range of industry and business types.

Outsourcing

involves contracting out pieces of the value chain formerly performed in-house to outside vendors, thereby narrowing the scope of the firm.

Backward integration

involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system.

Forward Integration

involves entry into value chain system activities closer to the end user. Improves market visibility, & enhances brand name awareness.

Companywide restructuring

involves making major changes in a diversified company by divesting some businesses and/or acquiring others, so as to *put a whole new face on the company's business lineup.*

Business Process Reengineering (BPR)

involves radically *redesigning and streamlining* how an activity is performed, with the intent of achieving quantum improvements in performance.

Weak-Culture Companies

lack widely shared & strongly held values, principles, & behavioral norms. *provide little or no assistance in executing strategy* because there are no traditions, beliefs or values.

Blue Ocean Strategy

offers growth in revenues and profits by *discovering or inventing new industry segments* that create altogether new demand. Great opportunity in the short run.

functional structure

organized into functional departments, with departmental managers who report to the CEO and small corporate staff.

Politicized Cultures

political infighting consumes a great deal of organizational energy, often with the result that what's best for the company takes a backseat to political maneuvering.

*Related Businesses*

possess competitively valuable cross-business value chain and resource matchups. *to benefit from strategic fit and specialized resources & capabilities.*

Corporate venturing

process of developing new businesses as an outgrowth of a company's established business operations.

Restructuring

refers to overhauling and streamlining the activities of a business—combining plants with excess capacity, selling off underutilized assets, reducing unnecessary expenses, and otherwise improving the productivity and profitability of the firm.

Scope of the firm

refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.

Corporate parenting

refers to the role that a diversified corporation plays in *nurturing its component businesses* through the provision of top management expertise, disciplined control, financial resources, and other types of generalized resources and capabilities such as long-term planning systems, business development skills, management development processes, and incentive systems.

Corporate Culture

refers to the shared values, ingrained attitudes, core beliefs, & company traditions that determine norms of behavior, accepted work practices, & styles of operating.

high-powered incentives

rewards are tied to specific outcome objectives.

High-Performance Cultures

standout traits are a "can do" spirit, pride in doing things right, no excuses accountability, & a pervasive results-oriented work climate in which people go all out to meet or beat stretch objectives.

Acquisition premium

the amount by which the price offered exceeds the pre-acquisition market value of the target company.

Merger

the combining of 2 or more companies into a single corporate entity, with the newly created company often taking on a new name.

Vertical Scope

the extent to which the firm engages in the various activities that make up the industry's entire value chain system, from raw materials production to final sales & service activities.

Horizontal Scope

the range of product & service segments that a firm serves within its *focal market*.

Six Sigma Programs

utilize advanced statistical methods to improve quality by reducing defects and variability in the performance of business processes

Parenting advantage

when a company is more able than other companies to boost the combined performance of its individual businesses through high-level guidance, general oversight, & other corporate-level contributions. Companies have what?

Resource fit

when its businesses have *matching* specialized *resource requirements* along their value chains.

Adaptive Cultures

willingness to accept change & take on the challenge of introducing & executing new strategies. Company personnel share a feeling of confidence that the organization can deal with whatever threats & opportunities arise.