Strategic MGMT Exam 3
Ambidexterity
Firms ability to address tradeoffs not only at one point but also over time. It encourages managers to balance exploitation and exploration
Absorptive capacity
Firms ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones
Inertia
Firms resistance to change the status quo, which can set the stage for the firm's subsequent failure
Organizational structure
A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed
Shared value creation framework
A model proposing that managers have a dual focus on shareholder value creation and value creation for society
Leveraged buyout (LBO)
A single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private
Moral hazard
A situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs incur to the other party
Adverse selection
A situation that occurs when information asymmetry increases the likelihood of selecting interior alternatives
Corporate governance
A system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally
Agency theory
A theory that views the firm as a nexus of legal contracts
12-3 Apply agency theory to explain why and how companies use governance mechanisms to align the interests of principals and agents
Agency theory views the firm as a nexus of legal contracts The principal-agent problem concerns the relationship between owners (shareholders) and managers and also cascades down the organizational hierarchy The risk of opportunism on behalf of agents is exacerbated by information asymmetry: Agents are generally better informed than the principals Governance mechanisms are used to align incentives between principals and agents Governance mechanisms need to be designed in such a fashion as to overcome two specific agency problems: adverse selection and moral hazard
Business ethics
An agreed-upon code of conduct in business, based on societal norms
Stock options
An incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right (but not the obligation) to buy a company's stock at a predetermined price sometime in the future
Ambidextrous organization
An org. Able to balance and harness different activities in trade-off situations
11.3 - Define organizational structure and describe its four elements
An organizational structure determines how firms orchestrate employees' work efforts and distribute resources. It defines how firms defines how firms divide and integrate tasks, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts The four building blocks of an organizational structure are specialization, formalization, centralization, and hierarchy
Exploitation
Applying current knowledge to enhance firm performance in the short term
Inside directors
Board members who are generally part of the company's senior management team; appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance
Outside directors
Board members who are not employees of the firm, but who are frequently senior executives from other firms or full-time professionals
12-1 Describe the shared value creation framework and its relationship to competitive advantage.
By focusing on financial performance, many companies have defined value creation too narrowly Companies should instead focus on creating shared value, a concept that includes value creation for both shareholders and society The shared value creation framework seek sot identify connections between economic and social needs and then leverage them into a competitive advantage
Mechanistic organization
Characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making
Organic organization
Characterized by a low degree of specialization and formalization, a flat org. Structure, and decentralized decision making
11.6 - Evaluate closed and open innovation, and derive implications for organizational structure
Closed innovation is a framework for R&D that proposes impenetrable firm boundaries. Key to success in the closed innovation model is that the firm, discovers, develops, and commercializes new products internally Open innovation is a framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are insourced while others are spun out
Organizational culture
Collectively shared values and norms of an org. Members; a key building block of org. Design
12-2 Explain the role of corporate governance
Corporate governance mechanisms used to direct and control an enterprise to ensure that it pursues its strategic goals successfully and legally Corporate governance attempts to address the principal-agent problem, which describes any situation in which an agent performs activities on behalf of a principal
Poison pill
Defensive provisions to deter hostile takeovers by making the target firm less attractive
Open innovation
Framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are insourced while others are spun out
Strategic control-and-reward systems
Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees)
Input controls
Mechanisms in a strategic control-and-reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered before the value-creating activities.
Output controls
Mechanisms in a strategic control-reward system that seek to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, SBUs
Shareholder capitalism
Shareholders - the providers of the necessary risk capital and the legal owners of public companies - have the most legitimate claim on profits
Span of control
Number of employees who directly report to a manager
Matrix structure
Org. structure that combines the functional structure with the M-form
Multidivisional structure (M-form)
Org. structure that consists of several distinct strategic business units each with its own profit-and-loss responsibility.
Functional structure
Org. structure that groups employees into distinct functional areas based on domain expertise
11.4 - Compare and contrast mechanistic versus organic organizations
Organic organizations are characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making Mechanistic organizations are described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making The comparative effectiveness of mechanistic versus organic organizational forms depends on context
11.7 - Describe the elements of organizational culture, and explain where organizational cultures can come from and how they can be changed
Organizational culture describes the collectively shared values and norms of its members Values define what is considered important, and norms define appropriate employee attitudes and behavior Corporate culture finds its expression in artifacts, which are observable expressions of an organization's culture
11.1- Define organizational design and list its three components.
Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes and procedures of an organization. The key components of organizational design are structure, culture and control. The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.
Formalization
Organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures
Specialization
Organizational element that describes the degree to which a task is divided into separate jobs (division of labor)
Hierarchy
Organizational element that determines the formal, position-based reporting lines and thus stipulates who reports to whom
Centralization
Organizational element that refers to the degree to which decision making is concentrated at the top of the organization
11.2 - Explain how organizational inertia can lead established firms to failure
Organizational inertia can lead to the failure of established firms when a tightly coupled system of strategy and structure experiences internal or external shifts. Firm failure happens through a dynamic, four step process.
Holacracy
Organizational structure in which decision making authority is distributed through loose collections or circles of self-organizing teams
Simple structure
Organizational structure where the founders tend to make all the important strategic decisions as well as run the day-to-day operations
12-5 Evaluate other governance mechanisms
Other important corporate mechanisms are executive compensation, the market for corporate control, and financial statement auditors, government regulators, and industry analysts Executive compensation has attracted significant attention in recent years. Two issues are at the forefront (1) the absolute size of the CEO pay package compared with the pay of the average employee and (2) the between the firm performance and CEO pay The board of directors and executive compensation are internal corporate-governance mechanisms. The market for corporate control is an important external corporate-governance mechanism. It consists of activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market All public companies listed on the US stock exchanges must file a number of financial statements with the SEC, a federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws. Auditors and industry analysts study these public financial statements carefully for clues of a firm's future valuations, financial irregularities, and strategy
Founder imprinting
Process by which the founder defines and shapes and organizations culture, which can persist for decades after their departure
Exploration
Searching for new knowledge that may enhance a firms future performance
Groupthink
Situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leaders opinions and assumptions
CEO/chairperson duality
Situation where the CEO of a publicly traded company is also the chairperson of the board of directors
11.8 - Compare and contrast different strategic control-and-reward systems
Strategic control-and-reward systems are internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees) Strategic control-and -reward systems allow managers to specify goals, measure progress, and provide performance feedback Managers can use organizational culture, input controls, and output controls as part of the firm's strategic control-and-reward systems Input controls define and direct employee behavior through explicit and codified rules and standard operating procedures Output controls guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs
Board of directors
The centerpiece of corporate governance composed of inside and outside directors who are elected by the shareholders
12-6 Explain the relationship between strategy and business ethics
The ethical pursuit of competitive advantage lays the foundation for long-term superior performance Law and the ethics are not synonymous; obeying the law is the minimum that society expects of a corporation and its managers A manager's actions can be completely legal, but ethically questionable Some argue that needs an accepted code of conduct that holds members to a high professional standard and imposes consequences for misconduct
Organizational design
The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization
12-4 Evaluate the board of directors as the central governance mechanism for public stock companies
The shareholders are the legal owners of a publicly traded company and appoint a board of directors to represent their interests The day-to-day business operations of a publicly traded stock company are conducted by its managers and employees, under the direction of the chief executive officer and the oversight of the board directors. The board of directors is composed of inside and outside directors, who are elected by the shareholders Inside directors are generally part of the company's senior management team, such as the chief financial officer and the chief operating officer Outside directors are not employees of the firm. They frequently are senior executives from other firms or full-time professionals who are appointed to a board and who serve on several board simultaneously
11.5 - Describe different organizational structures and match them with appropriate strategies
To gain and sustain competitive advantage, not only must structure follow strategy, but also the chosen organizational form must match the firm's business strategy The strategy - structure relationship is dynamic, changing in a predictable pattern - from simple to functional structure, then to multidivisional (M-form) and matrix structure - as firms grow in size and complexity In a simple structure, the founder tends to make all the important strategic decisions as well as run the day-to-day operations A functional structure groups employees into distinct functional areas based on domain expertise. Its different variations are matched with different business strategies; cost leadership, differentiation, and blue ocean The multidivisional (M-form) structure consists of several distinct SBU's, each with its own profit-and-loss responsibility. Each SBU operates more or less independently from one another, led by a CEO responsible for the business strategy of the unit and its day-to-day operations. The matrix structure is a mixture of two organizational forms: the M-form and the functional structure
