Business Strategy & Policy Test 1

Characteristics of a Vision Statement

"The 5-out-of-5 Test": 1) clear; 2) futuristic; 3) concise; 4) unique; 5) inspiring

There is a fairly clear distinction between the external and the internal environment, yet a gray area still exists.

True

Unlike with cost leadership where a firm examines how to reduce costs all along its value chain, with differentiation the firm looks to maximize value all along its value chain.

True

Organizational Culture

a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaption and internal integration, and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel

Related Diversification

adding new but related products

Unrelated Diversification

adding new, unrelated products

Blue Ocean Strategy

aims to target a new market where competition is not yet present, thus creating a "blue ocean" as opposed to a red ocean where many firms are competing often on price, and the gains of one firm are often at the expense of another

Mission Statements

an enduring statement of purpose that distinguishes one business from other similar firms

Internal Strengths and Weaknesses

an organization's controllable activities that are performed especially well or poorly

Benchmarking

analytical tool used to determine whether a firm's value chain is competitive compared to those of rivals and thus conducive to winning in the marketplace -entails examination of value chain activities across an industry to determine "best practices" among competing firms (pg. 143)

Competitive Advantage

any activity a firm does especially well compared with activities done by rival firms, or any resource a firm possess that rival firms desire

Comparing Business and Military Strategy

-Business Strategy: formulated, implemented, and evaluated with an assumption of competition; multiple winners -Military Strategy: based on an assumption of conflict; one winner

The persons primarily responsible for having effective strategies at the various levels include:

-CEO at corporate level -president of segments at divisional level -CFO, CIO, HRM, CMO, and other executives at functional level -plant manager, regional sales manager, etc. at operational level

External Factor Evaluation (EFE) Matrix

-allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information -provides an empirical assessment of how well a firm is handling external factors overall, including the firm's effectiveness at capitalizing on opportunities and minimizing threats

Vision Statement

-answers the question "what do we want to become?" -often considered first step in strategic planning

Process of developing vision and mission statements

-as many managers as possible should be involved -select several articles and ask all managers to read them as background info -ask managers to individually prepare vision and mission statements for the organization -facilitator or top managers should merge statements into a single document and distribute the draft statements to all managers -then, request for modifications, additions, and deletions is needed -pg. 53

Mission Statement

-declaration of an organization's "reason for being" -declaration of attitude and outlook -answers "What is our business?" -foundation for priorities, strategies, plans, and work assignments

Pitfalls in Strategic Management

-involved, intricate, and complex process that takes an organization into uncharted territory -does not provide a ready-to-use prescription for success -pg. 18

Five Types of Financial Ratios

-liquidity (how is the firm's cash position), -leverage (how is the firm's debt position), -activity (how efficient is the firm's operations), -profitability (how is the firm performing), -growth (is the firm meeting shareholders' expectations)

Five Characteristics of Objectives

-quantitative: measurable -understandable: clear -challenging: achievable -compatible: consistent vertically and horizontally in a chain of command -obtainable: realistic

Long-Term Objectives

-specific results that an organization seeks to achieve in pursuing its mission -more than one year

Steps in Developing an IFE Matrix

1) Develop a full and narrow list of key internal factors 2) Assign weights to key internal factors 3) Assign ratings to key internal factors 4) Obtain weighted scores 5) Obtain total weighted scores

Characteristics of a Mission Statement

1) broad in scope; 2) concise; 3) inspiring; 4) identifies the utility of a firm's products; 5) reveals that the firm is socially responsible; 6) reveals that the firm is environmentally responsible; 7) includes the nine components; 8) reconciliatory; 9) enduring but never cast in stone; 10) attracts customers

Being the first mover can be an excellent strategy when such actions:

1) build a firm's image and reputation with buyers; 2) produce cost advantages over rivals in terms of new technologies, new components, new distribution channels; 3) create strongly loyal customers; 4) make imitation or duplication by a rival difficult or unlikely

What 9 components should a mission statement include?

1) customers; 2) products or services; 3) markets; 4) technology; 5) concern for survivial/growth/profits; 6) philosophy; 7) distinctive competence; 8) concern for public image; 9) concern for employees

Steps to develop an EFE Matrix

1) develop a full and narrow list of key external factors; 2) assign weights to key external factors; 3) assign ratings to key external factors; 4) obtain weighted scores; 5) obtain total weighted scores

Reasons why many mergers and acquisitions fail

1) integrations difficulties up and down the two value chains; 2) taking on too much new debt the target firm owes or to buy the target; 3) inability to achieve synergy; 4) too much diversification; 5) difficult to integrate different organizational cultures; 6) reduced employee morale due to layoffs and relocations (pg. 149)

Five Basic Activities of Marketing

1) marketing research and target market analysis 2) product planning 3) pricing products 4) promoting products 5) placing or distributing products

Nonprofit organizations are similar to for-profit companies in virtually every respect except for two major differences:

1) nonprofits do not pay taxes; 2) nonprofits do not have shareholders to provide capital

Five Forces of the Porter's Model

1) rivalry among competing firms; 2) potential entry of new competitors; 3) potential development of substitute products; 4) bargaining power of suppliers; 5) bargaining power of consumers

Benefits of being the first mover:

1) secure access and commitments to rare resources; 2) gain new knowledge of critical success factors and issues; 3) gain market share and position in the best locations; 4) establish and secure long-term relationships with customers, suppliers, distributors, and investors; 5) gain customer loyalty and commitments; 6) gain patent protection early

Core Values Statement

specifies a firm's commitment to integrity, fairness, discipline, equal employment opportunity, teamwork, accountability, continuous improvement, or other such exemplary attributes

Michael Porter's Two Generic Strategies

strategies allow organizations to gain competitive advantage from two different bases: cost leadership and differentiation

Organic Growth

strategists must consider how well current internal resources match the capabilities needed to grow (4+ percent)

Strategic Management

the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives

First-Mover Advantage

the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms

Strategists

the individuals most responsible for the success or failure of an organization

Value Chain Analysis (VCA)

the process whereby a firm determines the value (price minus cost) of each and all activities that went into producing and marketing a product, from purchasing raw materials to manufacturing, distributing, and marketing those products. (pg. 141)

Combination Strategy

the simultaneous pursuit by an organization of two or more of growth, stability, and retrenchment strategies -can be exceptionally risky if carried too far

Resource-Based View

the view that a firm's internal resources are more important than the external forces in achieving and sustaining competitive advantage

Key External Forces

10 external forces, divided into 5 broad categories: 1) economic forces; 2) social, cutural, demographic, and environment (SCDE); 3) political, governmental, and legal forces; 4) technical forces; and 5) competitive forces

Means for Achieving Strategies

BUILD from within to grow, BORROW from others to grow, BUY others to grow

Benefits of Engaging in Strategic Planning

Financial: significant improvement in sales, profitability, and productivity -Nonfinancial: enhanced awareness of external threats, improved understanding of competitors' strategies, increased employee productivity, reduced resistance to change, and clearer understanding of performance-reward relationships

Types of Strategies

Forward integration, backward integration, horizontal integration, market penetration, market development, product development, related diversification, unrelated diversification, retrenchment, divestiture, liquidation

A mission statement is sometimes called a creed statement, a statement of purpose, a statement of philosophy, a statement of beliefs, a statement of business principles, or a statement "defining our business".

True

Accrediting bodies that audit colleges and universities (such as SACS and AACSB) require continuous strategic planning.

True

An external audit should result in a list of opportunities and threats that an organization is currently facing or will face in the future.

True

Companies are under continual pressure from stockholders to maintain top line (revenues) and bottom line (net income) growth (usually 4%) and pay higher dividends.

True

Effective means of implementing forward integration is franchising.

True

Great firms possess core values that remain fixed and almost never change.

True

In the IFE Matrix, strengths can only be rated a 3 or 4 and the weaknesses can only be rated a 1 or 2 because of the definitions.

True

Long-term objectives should be consistent, usually from 2 to 5 years.

True

The key difference between a CPM and EFE is that a CPM compares firms and an EFE Matrix analyzes how a firm internally is responding to key external issues.

True

Levels of Strategies in small firms

company, functional, and operational

Analytical thinking and intuitive thinking ________________ each other.

complement

Formulation, implementation, and evaluation of strategy activities occur at three hierarchical levels in a large organization:

corporate, divisional or strategic business unit, and functional

Levels of Strategies in large firms

corporate, divisional, functional, and operational

Since mission statements rarely include all nine components, which three components should always be included (according to the professor)?

customers, products or services, and marketing (the next most important ones are employees and distinctive competence)

Annual Objectives

short-term milestones that organizations must achieve to reach long-term objectives

Strategy Formulation

developing a vision and mission, identifying an organization's external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue

External Opportunities and Threats

economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future

Cost Leadership

emphasizes producing standardized products at a low per-unit cost for consumers who are price-sensitive

Key Internal Factors

factors over which the company has some degree of control/influence

Federal, state, county, and municipal agencies and departments are responsible for:

formulating, implementing, and evaluating strategies that use taxpayers' dollars in the most cost-effective way to provide services and programs

Forward Integration

gaining ownership or increased control over distributors or retailers

Called generic strategies because:

generally firms should be mindful it is often best to develop product lines that compete on cost or compete on unique value; it is difficult to compete on both simultaneously

Of the five financial ratios, the three most important to strategy are:

growth, profit, and leverage -activity and liquidity are usually more short-term limited

Quantitative

includes percentages, ratios, dollars, and number to the extent possible

Many nonprofit and governmental organizations outperform private firms and corporations on:

innovativeness, motivation, productivity, and strategic management

The functions of management can be performed best when a firm's strategy and culture are ________________.

integrated

Market Development

introducing present products into new geographic area

Based on past experiences, judgement, and feelings, most people recognize that ____________ is essential to making good strategic decisions.

intuition

Actionable

meaningful and helpful in ultimately deciding what actions or strategies a firm should consider pursuing

Policies

means by which annual objectives will be achieved

Strategies

means by which long-term objectives will be achieved

Actionable-Quantitative-Comparative-Divisional (AQCD) Test

measure of the quality of an internal factor

Porter's Five Forces Model

offers guidance to strategists in formulating strategies to keep rival firms at bay

Internal Assessment Phase of Strategy Formulation

one is trying to identify what strengths and weaknesses an organization might have

Six guidelines indicate when forward integration may be an especially effective strategy:

pg. 133

Why some firms do no strategic planning

pg. 18

Sun Tzu's writings applied in a business sense

pg. 20

Benefits of vision and mission statements

pg. 51-52

Differentiation

producing products and services considered unique to the industry and directed at consumers who are relatively price insensitive

4 P's of Marketing

product, place, promotion, price

Benefits of clearly established objectives include:

provide direction, allow synergy, assist in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and aid in both the allocation of resources and the design of jobs

Retrenchment

regrouping through cost and asset reduction to reverse declining sales and profit

Divisional

relates to the firm's products and/or regions (rather than consolidated) so inferences can be drawn regarding what products and regions are doing well or not

Strategy Implementation

requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed efficiently

Comparative

reveals changes over time

Competitive Profile Matrix (CPM)

reveals how a focal firm compares to major competitors across a range of key factors

Internal Factor Evaluation (IFE) Matrix

reveals key strengths and weaknesses confronting an organization; -vital info. for managers in formulating strategies that capitalize on strengths and mitigate/overcome/improve upon weaknesses

Strategy Evaluation

reviewing external and internal factors that are the bases for current strategies, measuring performance, taking corrective actions

Market Penetration

seeking increased market share for present products or services in present markets through greater marketing efforts

Products Development

seeking increased sales by improving present products or developing new ones

Backward Integration

seeking ownership or increased control of a firm's suppliers

Horizontal Integration

seeking ownership or increased control over competitors

Divestiture

selling a division or part of an organization

Liquidation

selling all of a company's assets, in parts, for their tangible worth

Leveraged Buyout (LBO)

when a firm's shareholders are bought by the company's management and other private investors using borrowed funds

Acquisition

when a large organization purchases (acquires) a smaller firm or vice versa

Hostile Takeover

when a merger or acquisition is not desired by both parties

Joint Venture

when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity and have shared equity ownership in the new entity (pg. 147)

Merger

when two organizations of about equal size unite to form one enterprise

Strategic-Management Model

widely accepted, comprehensive depiction of the strategic-management process (Figure 1-1)