Strategic management

What are the three steps required for a cost/benefit analysis?

1) compute the total costs associated with a decision, (2) estimate the total benefits from the decision, and (3) compare the total costs with the total benefits. When expected benefits exceed total costs, an opportunity becomes more attractive. Sometimes the variables included in a cost/benefit analysis cannot be quantified or even measured, but usually reasonable estimates can be made to allow the analysis to be performed.

What is contingency planning and how does it relate to strategic planning?

A basic premise of good strategic management is that firms strive to be proactive, planning ways to deal with unfavorable and favorable events before they occur. Too many organizations prepare contingency plans just for unfavorable events; this is a mistake, because both minimizing threats and capitalizing on opportunities can improve a firm's competitive position.

What are two of the reasons why strategy evaluation has become more difficult today?

A dramatic increase in the environment's complexity The increasing difficulty of predicting the future with accuracy The increasing number of variables The rapid rate of obsolescence of even the best plans The increase in the number of both domestic and world events affecting organizations The decreasing time span for which planning can be done with any degree of certainty

How does auditing fit within strategic evaluation?

A frequently used tool in strategy evaluation is the audit. Auditing is defined by the American Accounting Association (AAA) as "a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria, and communicating the results to interested users."

intensive strategy

A market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts. This strategy is widely used alone and in combination with other strategies Market development involves introducing present products or services into new geographic areas. For example, Whirlpool recently acquired Indesit, an Italian company that sells appliances, in order to double Whirlpool's size in Europe, where the company has struggled to compete against Electrolux AB of Sweden, LG Electronics Inc. of South Korea, and Haier Group of China.

List and explain five differences between strategy formulation and strategy implementation.

A science with tools and techniques-an art to energize people Difficult to do well-considerably more difficult to do well Process oriented - people oriented Primary responsibility of top managers- responsibility of mid and lower level managers

What is the main limitation of financial ratio analysis.

All last. Does not tell you what will happen in the future

What is a tax inversion and how does it affect international companies?

An increasing number of U.S. companies are reincorporating in foreign countries to reduce their tax burden, and doing this typically by acquiring a foreign firm. For example, Illinois-based AbbVie recently acquired Dublin-based Shire PLC for $54 billion and Pennsylvania-based Mylan acquired Abbott Laboratories' overseas generic drugs segment for $5.3 billion. Whenever a U.S. firm acquires a foreign firm and adopts that firm's lower tax rate or establishes a holding company in a foreign country and adopts that firm's lower tax rate, the transaction is called an inversion. Inversions are becoming common out of fear that politicians will soon eliminate that cross-border tax strategy. The U.S. Treasury Department installed some new rules in September 2014 to curtail inversions, but those rules had little effect. Under consideration currently are U.S.-based Pfizer and Medtronic bidding for Actavis (based in Ireland) and Covidien (based in Ireland), respectively, and Chiquita (based in Charlotte, NC) recently acquiring Fyffes (based in Ireland). Ireland in particular is taking steps to close the best-known corporate tax loophole.

Given breakeven point's components [Total Fixed Cost (TFC), Price (P), Variable Cost (VC), and quantity (q)], what is the formula to calculate the breakeven (BE) quantity of goods produced?

BE Quantity = TFC divided by (price - VC). In other words, the quantity or units of product that need to be sold for a firm to break even

What is a Balanced Scorecard and what does it force managers to do?

Balanced Scorecard derives its name from the perceived need of firms to "balance" financial measures that are oftentimes used exclusively in strategy evaluation and control with nonfinancial measures such as product quality and customer service. As a tool to manage and evaluate strategy

What are five of the reasons given by the text about why preserving the environment should be a permanent part of doing business?

Consumer demand for environmentally safe products and packages is high. Public opinion demanding that firms conduct business in ways that preserve the natural environment is strong. Environmental advocacy groups now have more than 20 million Americans as members. Federal and state environmental regulations are changing rapidly and becoming more complex. More lenders are examining the environmental liabilities of businesses seeking loans. Many consumers, suppliers, distributors, and investors shun doing business with environmentally weak firms. Liability suits and fines against firms having environmental problems are on the rise.

List at least four potential advantages to initiating, continuing, and/or expanding international operations.

Firms can gain new customers for their products. Foreign operations can absorb excess capacity, reduce unit costs, and spread economic risks over a wider number of markets. Foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials or cheap labor. Competitors in foreign markets may not exist, or competition may be less intense than in domestic markets. Foreign operations may result in reduced tariffs, lower taxes, and favorable political treatment. Joint ventures can enable firms to learn the technology, culture, and business practices of other people and to make contacts with potential customers, suppliers, creditors, and distributors in foreign countries. Economies of scale can be achieved from operation in global rather than solely domestic markets. Larger-scale production and better efficiencies allow higher sales volumes and lower-price offerings. A firm's power and prestige in domestic markets may be significantly enhanced if the firm competes globally. Enhanced prestige can translate into improved negotiating power among creditors, suppliers, distributors, and other important groups.

Why has MIS been considered an important factor in differentiating successful and unsuccessful firms?

Firms that gather, assimilate, and evaluate external and internal information most effectively are gaining competitive advantages over other firms. The process of strategic management is facilitated immensely in firms that have an effective information system. Information collection, retrieval, and storage can be used to create competitive advantages in ways such as cross-selling to customers, monitoring suppliers, keeping managers and employees informed, coordinating activities among divisions, and managing funds.

List at least four potential disadvantages to initiating, continuing, and/or expanding international operations.

Foreign operations could be seized by nationalistic factions. Firms confront different and often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic, and competitive forces when doing business internationally. These forces can make communication difficult in the firm. Weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated. Keeping informed about the number and nature of competitors is more difficult when doing business internationally. Language, culture, and value systems differ among countries, which can create barriers to communication and problems managing people. Gaining an understanding of regional organizations such as the European Economic Community, the Latin American Free Trade Area, the International Bank for Reconstruction and Development, and the International Finance Corporation is difficult but is often required in doing business internationally. Dealing with two or more monetary systems can complicate international business operations.

Integration strategies

Forward integration involves gaining ownership or increased control over distributors or retailers. Increasing numbers of manufacturers (suppliers) are pursuing a forward integration strategy by establishing websites to sell their products directly to consumers Backward integration is a strategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especially appropriate when a firm's current suppliers are unreliable, too costly, or cannot meet the firm's needs

What are the three comparisons that should be used when looking at financial ratios?

How has each ratio changed over time? How does each ratio compare to industry norms? How does each ratio compare with key competitors?

What are five strategic marketing issues or decisions?

How to make advertisements more interactive to be more effective How to take advantage of Facebook and Twitter conservations about the company and industry To use exclusive dealerships or multiple channels of distribution To use heavy, light, or no TV advertising versus online advertising To limit (or not) the share of business done with a single customer To be a price leader or a price follower To offer a complete or limited warranty To reward salespeople based on straight salary, commission, or a combination salary and commission

What are three of the guidelines for effective strategic management?

Keep the process simple and easily understandable. Eliminate vague planning jargon. Keep the process nonroutine; vary assignments, team membership, meeting formats, settings, and even the planning calendar. Welcome bad news and encourage devil's advocate thinking. Do not allow technicians to monopolize the planning process. To the extent possible, involve managers from all areas of the firm

Who is/are most able to influence ethical behavior within the company?

Management

List two of the 'principles of good governance'.

Never have more than two of the firm's executives (current or past) on the board. Never allow a firm's executives to serve on the board's audit, compensation, or nominating committee. Require all board members to own a large amount of the firm's equity. Require all board members to attend at least 75 percent of all meetings. Require the board to meet annually to evaluate its own performance, without the CEO, COO, or top management in attendance. Never allow the CEO to be chairperson of the board. Never allow interlocking directorships (where a director or CEO sits on another director's board).11

What are policies and how do they help manage and organization?

Policies refer to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work toward stated goals. Policies set boundaries, constraints, and limits on the kinds of administrative actions that can be taken to reward and sanction behavior. Policies let both employees and managers know what is expected of them, thereby increasing the likelihood that strategies will be implemented successfully. Policies provide a basis for management control and allow coordination across organizational units. Policies reduce the amount of time managers spend making decisions. Policies also clarify what work is to be done and by whom. Policies promote delegation of decision making to appropriate managerial levels where various problems usually arise. Policies clarify what can and cannot be done in pursuit of an organization's objectives.

List and define the three defensive strategies.

Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. Sometimes called a turnaround or reorganizational strategy, retrenchment is designed to fortify an organization's basic distinctive competence Divestiture Selling a division or part of an organization is called divestiture. It is often used to raise capital for further strategic acquisitions or investments. Divestiture can be part of an overall retrenchment strategy to rid an organization of businesses that are unprofitable, that require too much capital, or that do not fit well with the firm's other activities. Liquidation Selling all of a company's assets, in parts, for their tangible worth is called liquidation; it is associated with Chapter 7 bankruptcy. Liquidation is a recognition of defeat and consequently can be an emotionally difficult strategy. However, it may be better to cease operating than to continue losing large sums of money.

What are five cultural products that can be used to influence and direct strategy?

Rites Planned sets of activities that consolidate various forms of cultural expressions into one event Ceremonies Several rites connected together Rituals Standardized sets of behaviors used to manage anxieties Myths Narratives of imagined events, usually not supported by facts Sagas Historical narratives describing the unique accomplishments of a group and its leaders Legends Handed-down narratives of some wonderful event, usually not supported by facts Stories Narratives usually based on true events Folktales Fictional stories Symbols Any object, act, event, quality, or relation used to convey meaning Language The manner in which members of a group communicate Metaphors Shorthand of words used to capture a vision or to reinforce old or new values Values Life-directing attitudes that serve as behavioral guidelines Beliefs Understanding of particular phenomena Heroes/Heroines individuals greatly respected

What are the characteristics of a good objective?

SMART

What are the four combinations of the SWOT Matrix? Which would generally require defensive strategies?

SO strategies use a firm's internal strengths to take advantage of external opportunities. WO strategies aim at improving internal weaknesses by taking advantage of external opportunities. ST strategies use a firm's strengths to avoid or reduce the impact of external threats. WT strategies are defensive tactics directed at reducing internal weakness and avoiding external threats.

Describe the two major perspectives about a corporation's social responsibility?

Some strategists agree with Ralph Nader, who proclaims that organizations have tremendous social obligations. Nader points out, for example, that ExxonMobil has more assets than most countries, and because of this, such firms have an obligation to help society cure its many ills. Other people, however, agree with the economist Milton Friedman, who asserts that organizations have no obligation to do any more for society than is legally required. Friedman may contend that it is irresponsible for a firm to give monies to charity.

What are the four types of organizational structure? Which would have a CFO report directly to the CEO?

The Functional Structure The most widely used structure is the functional or centralized type because this structure is the simplest and least expensive of the seven alternatives. A functional structure groups tasks and activities by business function, such as production and operations, marketing, finance and accounting, research and development, and management information systems. The Divisional Structure The divisional (decentralized) structure is the second-most common type. Divisions are sometimes referred to as segments, profit centers, or business units. As a small organization grows, it has more difficulty managing different products and services in different markets. Some form of divisional structure generally becomes necessary to motivate employees, control operations, and compete successfully in diverse locations. The Strategic Business Unit (SBU) Structure As the number, size, and diversity of divisions in an organization increase, controlling and evaluating divisional operations become increasingly difficult for strategists. Increases in sales often are not accompanied by similar increases in profitability. The span of control becomes too large at top levels of the firm. The Matrix Structure A matrix structure is the most complex of all designs because it depends on both vertical and horizontal flows of authority and communication (hence the term matrix). In contrast, functional and divisional structures depend primarily on vertical flows of authority and communication. A matrix structure can result in higher overhead because it creates more management positions.

What is meant by governance and who is generally involved?

The act of oversight and direction is referred to as governance. The National Association of Corporate Directors defines governance as "the characteristic of ensuring that long-term strategic objectives and plans are established and that the proper management structure is in place to achieve those objectives, while at the same time making sure that the structure functions to maintain the corporation's integrity, reputation, and responsibility to its various constituencies." Boards are held accountable for the entire performance of an organization. Boards of directors are increasingly sued by shareholders for mismanaging their interests

diversification strategy

The two general types of diversification strategies are related diversification and unrelated diversification. Businesses are said to be related when their value chains possess competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationships exist.11 Most companies favor related diversification strategies to capitalize on synergies as follows:

What are three of the reasons that objectives are essential for strategic implementation?

They represent the basis for allocating resources. They are a primary mechanism for evaluating managers. They enable effective monitoring of progress toward achieving long-term objectives. They establish organizational, divisional, and departmental priorities. They are essential for keeping a strategic plan on track.

What is the difference between how Mintzberg and the textbook authors' view strategic management?

This book is consistent with most of the strategy literature in advocating that strategic management be viewed more as a science than an art. This perspective contends that firms need to systematically assess their external and internal environments, conduct research, carefully evaluate the pros and cons of various alternatives, perform analyses, and then decide on a particular course of action. In contrast, Mintzberg's notion of "crafting" strategies embodies the artistic model, which suggests that strategic decision making be based primarily on holistic thinking, intuition, creativity, and imagination.16 Mintzberg and his followers reject strategies that result from objective analysis, preferring instead subjective imagination. "Strategy scientists" reject strategies that emerge from emotion, hunch, creativity, and politics. Proponents of the artistic view often consider strategic planning exercises to be time poorly spent. The Mintzberg philosophy insists on informality, whereas strategy scientists (and this text) insist on more formality. Mintzberg refers to strategic planning as an "emergent" process, whereas strategy scientists use the term deliberate process.

Describe three examples of finance and accounting decisions that may require policies?

To raise capital with short-term debt, long-term debt, preferred stock, or common stock To lease or buy fixed assets To determine an appropriate dividend payout ratio To use last-in, first-out (LIFO), first-in, first-out (FIFO), or a market-value accounting approach To extend the time of accounts receivable To establish a certain percentage discount on accounts within a specified period of time To determine the amount of cash that should be kept on hand

What is the difference between sexual harassment and workplace romance and why should companies have policies against both?

Workplace Romance Workplace romance is an intimate relationship between two consenting employees, as opposed to sexual harassment, which the Equal Employment Opportunity Commission (EEOC) defines broadly as unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature. Sexual harassment (and discrimination) is illegal, unethical, and detrimental to any organization and can result in expensive lawsuits, lower morale, and reduced productivity. Workplace romance between two consenting employees simply happens, so the question is generally not whether to allow the practice, or even how to prevent it, but rather how best to manage the phenomena. An organization probably should not strictly forbid workplace romance because such a policy could be construed as an invasion of privacy, overbearing, or unnecessary. Some romances actually improve work performance, adding a dynamism and energy that translates into enhanced morale, communication, creativity, and productivity.

How does the resource-based view relate to competitive advantage?

internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage

What is the difference between financial and strategic objectives?

objectives. Financial objectives include those associated with growth in revenues, growth in earnings, higher dividends, larger profit margins, greater return on investment, higher earnings per share, a rising stock price, improved cash flow, and so on; whereas strategic objectives include things such as a larger market share, quicker on-time delivery than rivals, shorter design-to-market times than rivals, lower costs than rivals, higher product quality than rivals, wider geographic coverage than rivals, achieving technological leadership, consistently getting new or improved products to market ahead of rivals, and so on.