Ch. 9 Strategy Formulation

What are the three levels A firm's human resources (HR) can be examined at?

(1) the board of directors; (2) top management; and (3) middle management, supervisors, and employees.

What Strengths and Weaknesses should firms consider the following issues based on Top Management?

1. Backgrounds and capabilities of top managers: Comprehending their strengths and weaknesses in experience, managerial style, decision-making capability, and team building is useful. Although having executives who have an extensive knowledge of the firm and its industry can be advantageous, managers from diverse and complementary backgrounds may generate innovative strategic ideas. In addition, an organization's management needs may change as the firm grows and matures. Because firms are often started by innovative entrepreneurs who happen to be poor administrators, they often add key administrators to the top management team, which includes the group of top-level executives—headed by the chief executive officer (CEO)—all of whom play instrumental roles in the strategic management process. 2. Tenure (experience) as members of top management: Although lengthy tenure can mean consistent and stable strategy development and implementation, low turnover may breed conformity, complacency, and a failure to explore new opportunities. CEO turnover is even desirable when the firm is unable to meet its performance targets. 3. Strengths and weaknesses of individual top managers: Some executives may excel in strategy formulation, for instance, but be weak in implementation. Some may spend considerable time on internal stakeholders and operations whereas others may concentrate on external constituents. As with the board of directors, it is helpful for board members to possess complementary skills to function well as a team. In addition, a number of large companies offer financial incentives to sign and retain top executives with knowledge critical to the firm.

Five issues concerning the strengths and weaknesses of physical resources should be considered:

1. Currency of technology: All things equal, competitors with superior technology and the ability to use it have a decided competitive advantage in the marketplace. This is especially true in global markets and should be assessed in each of the nations in which the firm operates. 2. Quality and sophistication of distribution network: Distribution networks apply to both manufacturing and service concerns. American Airlines' domination of passenger gates at Dallas/Fort Worth Airport and Delta's similar control in Atlanta give both of these service companies a competitive advantage. 3. Production capacity: A continual backlog of orders may indicate a growing market acceptance of a firm's product, or it may depict serious problems associated with insufficient capacity. A firm can expand its capacity by increasing production shifts or obtaining additional facilities, but such measures can be costly. 4. Reliable access to cost-effective sources of supplies: Suppliers who are unreliable, lack effective quality control programs, or cannot control their costs well do not foster a competitive advantage for the buying firm. 5. Favorable location(s): Ideally, the organization should be located where skilled labor, suppliers, and customers are readily accessible.

Valuable

Definition: Can be employed to exploit an opportunity or neutralize a threat Implication: If only valuable, then there is only parity with rivals. There is no competitive advantage.

Four issues in strategy formulation:

1. Evaluating Strategic Change 2. Strategy, Corporate Social Responsibility, and Managerial Ethics 3. Effects on Organizational Resources 4. Anticipated Responses from Competitors and Customers

What Strengths and Weaknesses should firms consider the following issues based on Middle Management, Supervisors, and Employees?

1. Existence of a comprehensive human resource planning program: Developing such a program requires that the firm forecast its personnel needs, including types of positions and requisite qualifications, for the next several years based on its strategic plan. 2. Strategically relevant knowledge or expertise possessed by members of the firm: Many firms place a great emphasis on retaining high-quality individuals in a number of areas, such as research and development (R & D) or sales. This is a critical issue when a firm is heavily involved in global competition. Interestingly, all companies claim to have the best workforce, but clearly this is not the case. 3. Emphasis on training and development: Some firms view training and development as a strategic issue and seek long-term benefits from its training programs. In contrast, other firms view training as a short-term necessity and emphasize cost minimization in their programs. 4. Turnover: High turnover relative to levels among close competitors generally reflects personnel problems, such as poor management-employee relations, low compensation or benefits, or low job satisfaction due to other causes. 5. Emphasis on effective performance appraisal (PA): Progressive firms utilize PA to provide accurate feedback to managers and employees, link rewards to actual performance, and show managers and employees how to improve performance, as well as comply with all equal employment opportunity requirements. Firms that do not adequately appraise high performers—and reward them—are more likely to lose them. 5. Position in the industry: All things equal, firms that possess strong market positions are in a better position to implement strategic changes than those in weak positions. For firms operating globally, this assessment must be made in the various nations in which the firm operates. 6. Product and service quality: It is important to comprehend how quality levels of the firm's products and services compare with those of rival firms. 7. Reputation of the firm and/or brand: Many firms have established reputations for factors such as high quality and customer service.

What are three broad categories of firm resources that form the foundation for firm strengths and weaknesses?

1. Human resources: The experience, capabilities, knowledge, skills, and judgment of all the firm's employees 2. Organizational resources: The firm's systems and processes, including its strategies at various levels, structure, and culture 3. Physical resources: Plant and equipment, geographic locations, access to raw materials, distribution network, and technology.

Rare

Definition: Controlled by one or a few entities Implication: If only valuable and rare, competitive advantage exists but is likely to be temporary.

What is the SW/OT Matrix?

A tool for generating alternative courses of action by identifying relevant combinations of internal characteristics (i.e., strengths and weaknesses) and external forces (i.e., opportunities and threats).

What Strengths and Weaknesses should firms consider the following issues based on Board of Directors?

1.Prospective contributions of corporate board members: Strong board members possess considerable experience, knowledge, and judgment, as well as valuable outside political connections. 2. Tenure (experience) as members of the corporate board: Long-term stability enables board members to gain organizational knowledge, but some turnover is beneficial because new members often bring a fresh perspective to strategic issues. 3. Connection to the firm (i.e., internal or external) and ability to represent various stakeholders: Although it is common for several top managers to be board members, a disproportionate representation of them diminishes the identity of the board as a group apart from top management. Ideally, board members should represent diverse stakeholders, including minorities, creditors, customers, and the local community. A diverse board membership can contribute to the health of the firm.

The description of activities that comprise the economic performance and capabilities of the firm is known as __________. A. the value chain B. process innovation C. quality assessment D. none of the above

A- the value chain *The value chain describes activities that comprise the economic performance and capabilities of the firm.

What are capabilities?

A firm's skills at coordinating and leveraging resources to create value (often called strategic capabilities or dynamic capabilities).

Blue Ocean Strategy

A growth strategy contingent on inventing or discovering a new industry or industry segment that creates new demand.

What is the VRIO framework?

A tool for assessing the competitive quality of a firm's resources by examining value, rarity, imitability, and organization.

Which of the following is not a category of firm resources? A. strategic resources B. human resources C. organizational resources D. All of the above are categories of firm resources

A. strategic resources

When can the organization began to craft the strategy?

After the firm's mission and ongoing strategic directions are well understood

What are physical resources?

An organization's plant and equipment, geographic locations, access to raw materials, distribution network, and technology.

What is the value Chain?

Another useful concept for analyzing strengths and weaknesses and understanding how they translate into an advantage or disadvantage. The Value Chain describes the activities that comprise the economic performance and capabilities of the firm. Identifies primary and support activities that create value for customers.

The tool that enables executives to position an organization to take advantage of particular opportunities in the environment while avoiding or minimizing environmental threats is called __________. A. PEST analysis B. SWOT analysis C. total quality management (TQM) analysis D. none of the above

B - SWOT analysis *The SWOT analysis enables executives to position a firm to take advantage of particular opportunities in the environment while avoiding or minimizing environmental threats.

Which of the following could not be an example of a weakness? A. product quality B. fierce competition C. human resources D. all of the above

B - fierce competition * Fierce competition comes from outside of the organization and would be a threat, not a weakness.

Strategic alternatives A. should always be adopted B. emanate from the SW/OT matrix C. emanate from creative managers D. all of the above

B. emanate from the SW/OT matrix

Which of the following is not an organizational resource consideration? A. consistency between the firm's strategies and its structure B. emphasis on effective performance appraisal C. reputation of the firm D. all of the above are organizational resource considerations

B. emphasis on effective performance appraisal

Which of the following cannot be internal to the organization? A. strength B. threat C. weakness D. all of the above can be internal

B. threat

Which of the following is an example of a physical resource? A. experience B. strategies C. distribution network D. none of the above

C. distribution network

Which of the following is not a resource consideration for the board of directors? A. experience as a member B. connection to the firm C. number of board meetings D. All of the above are resource considerations

C. number of board meetings

Which of the following is not a physical resource consideration? A. currency of technology B. reliable access to cost-effective sources of supplies C. reputation of the firm D. All of the above are physical resource considerations

C. reputation of the firm

What is the first step in crafting a strategy?

Conduct a SWOT Analysis

To sustain competitive advantage, firms must acquire or develop resources that are __________. A. difficult for competitors to imitate B. long lasting C. difficult for competitors to acquire on the market D. all of the above

D - all of the above *A firm must utilize resources that are long lasting and not easily acquired by rivals through imitation, transfer, or replication if the firm is to sustain competitive advantage.

Physical resources include __________. A. production facilities B. plant locations C. production capacity D. all of the above

D- all of the above *Physical resources include currency of technology, quality, and sophistication of the distribution network, production capacity, access to suppliers, and favorable locations.

Which of the following is not an argument for strategic consistency? A. Strategic change can be expensive B. There is no assurance that strategic changes will be successful C. Consumer confusion may result from strategic change even then the new strategy represents a better fit with firm's resources D. All of the above are arguments for strategic consistency

D. All of the above are arguments for strategic consistency

Which of the following is not resource consideration for top managers? A. experience as a member B. backgrounds and capabilities C. Strengths and weaknesses of individual members D. All of the above are resource considerations.

D. All of the above are resource considerations.

Which type of alternative is always defensive in nature? A. strength-opportunity B. strength-threat C. weakness-opportunity D. weakness-threat

D. Weakness-threat *Weakness-threat alternatives are always defensive in nature. Strength-opportunity alternatives are always offensive. Other alternatives can be either offensive or defensive.

Which of the following may not be offensive in nature? A. strength-opportunity alternative B. strength-threat alternative C. weakness-opportunity alternative D. weakness-threat alternative

D. weakness-threat alternative

Inimitable

Definition: Costly for rivals to duplicate Implication: If valuable, rare, and inimitable, the firm has the potential for long-term competitive advantage.

Organization

Definition: The firm possesses the appropriate capabilities to leverage the resource Implication: If valuable, rare and inimitable, and if the firm has the appropriate capabilities, then sustainable competitive advantage can be achieved.

(T/F) Opportunities and strengths are associated with factors inside the organization.

False

(T/F): Weakness-threat alternatives are always offensive in nature

False

(T/F): Choosing the "no change" strategy and thereby recommending that the current strategy be continued is the least risky option.

False *Choosing not to institute any strategic changes can be more risky than recommending major changes in the strategy, depending on the situation.

(T/F): A factor can be both an opportunity and a strength

False *Only external factors can be opportunities and/or threats whereas only internal factors can be strengths and/or weaknesses

(T/F): Another name for an opportunity is an alternative.

False *Opportunities represent the application of macroenvironmental forces to a specific organization whereas alternatives emanate from the SW/OT matrix and represent specific courses of action that the organization may choose to pursue.

(T/F): . The value chain is an analytical technique for identifying organizational opportunities and threats.

False *The value chain is a useful tool for analyzing a firm's strengths and weaknesses and understanding how they might translate into competitive advantage or disadvantage.

What is gap analysis?

Identifying the distance between a firm's current position and its desired position with regard to an internal weakness. All things equal, it is desirable to take action to close the gap, especially when the gap leaves a firm vulnerable to external threats in its environment.

What is the difference between opportunities and alternatives?

Opportunities represent the application of forces in the external environment to a specific organization. Alternatives emanate from the SW/OT matrix and represent specific courses of action that the organization may choose to pursue.

Strategy level-strategy complexity (SLSC) matrix

SLSC matrix compares and contrasts the alternatives on the basis of strategy level—corporate, business, or functional—and strategy complexity—the extent to which executing the strategy would require substantial change, resources, and uncertainty. All things equal, the lower the strategy level and the less complex the strategy, the easier it will be to execute. Alternatively, the higher the strategy level and the more complex the strategy, the more difficult execution is likely to be. For this reason, implementing multiple high level, complex strategies is usually not advisable.

What is a SWOT Analysis?

Strengths, Weaknesses, Opportunities, and Threats; enables top managers to position the firm to take advantage of select opportunities in the environment while avoiding or minimizing environmental threats.In doing so, the organization attempts to emphasize its strengths and moderate the potential negative consequences of its weaknesses.

Weakness-Threat

These "defensive" alternatives involve taking some corrective action to eliminate or minimize a weakness so as to minimize the effect of a threat

Strength-Opportunity

These "offensive" alternatives tend to be the most common and involve utilizing an organizational strength to address an opportunity

Weakness-Opportunity

These alternatives involve shoring up a weakness so that the organization can take advantage of an opportunity and may be offensive or defensive.

Strength-Threat

These alternatives involve utilizing a strength to eliminate or minimize the effect of a threat. Strength-threat alternatives may be offensive or defensive.

(T/F): It is not uncommon for several top managers to serve as members of the board of directors

True

(T/F): The most attractive organizational and physical resources are useless without a competent workforce of managers and employees.

True

(T/F): The purpose of the SW/OT matrix is to help identify strategic alternatives for an organization

True

(T/F): The value chain identifies primary and support activities that create value for customers.

True

(T/F): When possible, a firm should take action to close the gap—especially when the gap leaves a firm vulnerable to external threats in its environment.

True

(T/F): Opportunities and threats should emanate from the analysis of macroenvironmental and industry forces.

True *Opportunities and threats are developed from the analysis previously performed on the macroenvironment and the industry.

(T/F) The first step in crafting a strategy is the SWOT analysis

True *The first step in crafting a strategy, a SWOT analysis, can enable the firm to position itself to take advantage of particular opportunities in the environment while avoiding or minimizing environmental threats.

What are examples of Primary Activities in the chain?

inbound logistics, operations, outbound logistics, marketing, and service

What are examples of Support Activities in the chain?

the firm infrastructure, human resources management (HRM), technology, and procurement.