Chapter 1: Strategic Management - Creating Competitive Advantages

Competitive Advantage

A firm's resources and capabilities that enable it to overcome the competitive forces in its industry(ies). Sustainable competitive advantage is possible only by performing different activities from rivals or performing similar activities in different ways. Examples of companies with this include Walmart, Southwest Airlines, and IKEA.

Stakeholder Management

A firm's strategy for recognizing and responding to the interests of all its salient stakeholders.

A good mission statement, by addressing each principal theme, must communicate __________ an organization is special and different.

WHY

The essence of strategic management is the study of ____________ some firms outperform others.

WHY

Borders

1971: Louis & Tom Borders opened their first store in Ann Arbor, MI. The brothers were students at the University of MI, and created a revolutionary system to track sales and inventory. With this new system they were able to oversee the flow of a huge number of titles broken into thousands of different subject categories across multiple stores. By the 1990's, Barnes & Noble came along, controlling 40% of the retail book market. 2005: Borders last profitable year. 2011: By February, Borders filed bankruptcy. Attempts to reorganize failed, resulting in a final liquidation of assets. The last store closed its doors on 9/18/2011. While Borders was investing in physical real estate, shoppers were flocking to the Internet. Borders quickly faced declining sales. During the last 11 years of operation, Borders was led by 6 diferent CEO's. Borders kept a traditional mindset until the very end, focusing on rivals with which it was most fmailiar.

Socially Responsible Investing (SRI)

A broad-based approach to investing that now encompasses an estimated $3.07 trillion out of $25.2 trillion in the U.S. investment marketplace. SRI recognizes that corporate responsibility and societal concerns are considerations in investment decisions. With SRI, investors have the opportunity to put their money to work to build a more sustainable world while earning competitive returns both today and over time.

Horizontal Integration

A corporate expansion strategy in which companies acquire their competitors. A business scheme in which companies producing similar products merge. Forward integration would be if a firm buys out another.

Organizational Vision

A goal that is "massively inspiring, overarching, and long term." An organizational goal(s) that evoke(s) powerful and compelling mental images. The vision statement may contain a slogan, diagram, or picture—whatever grabs attention. Often, vision is a sloganeering campaign of new buzzwords and empty platitudes like "devotion to the customer," "teamwork," or "total quality" that aren't consistently backed by management's action. Visions can FAIL/Back Fire for many reasons: 1) The walk doesn't match the talk - if this becomes visible to the leaders and employees, it can lead to them becoming discouraged and demotivated. (aka lack of alignment) 2) IRRELEVANCE, visions created in a vacuum—unrelated to environmental threats or opportunities or an organization's resources and capabilities—often ignore the needs of those who are expected to buy into them. Employees reject visions that are not anchored in reality. (ie; your business decides that it wants to be #1 in the cosmetic industry, however, it does NOT indicate HOW the vision will be achieved specifically. 3) Not the Holy Grail, managers often search continually for the one elusive solution that will solve their firm's problems—that is, the next "holy grail" of management. 4) Too much focus leads to missed opportunities - As a result of always searching for the next best thing, too much focus can be targeted on one product only. 5) An ideal future reconciled with the Present. Make sure that your future goal can be justified with what your present status/position/ability to perform can support.

Peter Senge

A leading strategic management author. Refers to the requirement of incorpating both short-term and long-term perspectives as "creative tension."

Strategic Objectives

A set of organizational goals that are used to operationalize the mission statement and that are specific and cover a well defined time frame. Also provides direction for the short term goals. Includes, both, Financial and Non-Financial Objectives, as well as, Lower-level objectives that are more specific than strategic objectives; also known as SHORT TERM objectives. For objectives to be meaningful, they need to satisfy several criteria. They must be: • MEASURABLE: There must be at least one indicator (or yardstick) that measures progress against fulfilling the objective. • SPECIFIC: This provides a clear message as to what needs to be accomplished. • APPROPRIATE: It must be consistent with the organization's vision and mission. • REALISTIC: It must be an achievable target given the organization's capabilities and opportunities in the environment. In essence, it must be challenging but doable. • TIMELY: There must be a time frame for achieving the objective. As the economist John Maynard Keynes once said, "In the long run, we are all dead!"

Mission Statements

A set of organizational goals that include both the purpose of the organization, its scope of operations, and the basis of its competitive advantage. Effective mission statements incorporate the concept of stakeholder management, suggesting that organizations must respond to multiple constituencies. Customers, employees, suppliers, and owners are the primary stakeholders, but others may also play an important role. Mission statements also have the greatest impact when they reflect an organization's enduring, overarching strategic priorities and competitive positioning. Mission statements also can vary in length and specificity. MEDIUM TERM.

Stakeholder

A stakeholder can be defined as an individual or group, inside or outside the company, that has a stake in and can influence an organization's performance. Each stakeholder group makes various claims on the company. Groups/Nature of Claim (From SLIDE 29): 1) STOCKHOLDERS have dividends & capital appreciation. 2) EMPLOYEES have wages, benefits, safe working environment, & job security. 3) SUPPLIERS receive payments on time, & have assurance of a continued relationship. 4) CREDITORS receive payments of interest, & repayment of principal. 5) CUSTOMERS have value & warranties. 6) GOVERNMENT receives taxes & compliance with regulations. 7) COMMUNITIES have good citizenship behavior such as charities, employment, and not polluting the environment. Organizations cannot ignore the interests and demands of stakeholders such as citizens and society in general that are beyond its immediate constituencies—customers, owners, suppliers, and employees. The realization that firms have multiple stakeholders and that evaluating their performance must go beyond analyzing their financial results has led to a new way of thinking about businesses and their relationship to society. ZERO Sum: Stakeholders compete for attention and resources, and the gain of one is a loss to the other. SYMBIOSIS: Stakeholders are dependent upon each other for success and well-being, and they receive mutual benefits.

Casual Ambiguity

A type of tool that is used in economics in determining the strategic resource that a company has available to it. The tool seeks to discover if resources are valuable, rare, in-imitable, and non-substitutable. See also resourced-based view. Read more: http://www.businessdictionary.com/definition/casual-ambiguity.html

According to Henry Mintzberg, the realized strategies of a firm is ___________________ .

A. are a combination of deliberate and emergent strategies. B. are a combination of deliberate and differentiation strategies. C. must be based on a company's strategic plan. D. must be kept confidential for competitive reasons. ANSWER: A

P&G created a cleaning product that led to a change in consumer shopping habits and also a revolution in industry supply chain economics. According to the text, this is an example of ___________.

A. zero-sum relationship among stakeholders B. stakeholder symbiosis C. rewarding stakeholders D. emphasizing financial returns ANSWER B

Vertical Integration

Acquiring firms at different levels of channel activity. Controlling every aspect of production from beginning to end. AKA Forward (As you move closer to the market) or Backward integration.

Strategy Implementation

Actions made by firms that carry out the formulated strategy, including strategic controls, organizational design, and leadership. Sound strategies are of no value if they are not properly implemented. Strategy implementation involves ensuring proper strategic controls and organizational designs, which includes establishing effective means to coordinate and integrate activities within the firm, as well as, with its suppliers, customers, and alliance partners. Leadership plays a central role to ensure that the organization is committed to excellence and ethical behavior. It also promotes learning environment and continuous improvement and acts entrepreneurially in creating new opportunities. Fostering Corporate Entrepreneurship: - Firms must continually improve and grow. - Firms must find new ways to renew themselves. - Entrepreneurship and innovation provide for new opportunities (enhance a firms innovative capacity)

Jeff Bezos (aka Jeffrey Preston)

American Businessman. Amazon's founder, president, CEO, and chairman. Net worth, as of July 2016, $63.3B.

Michael Souers

Analyst for Standard & Poor's. "They over-expanded and built up some debt on their balance sheet. Instead of leading and being innovative, they were certainly a follower." ("They" being Borders)

Even well-established firms can fail in the marketplace if they do not ________________ and ______________ proactively to changes in the environment.

Anticipate, Respond

Triple Bottom Line

Assessment of a firm's financial, social, and environmental performance. For many successful firms, environmental values are now becoming a central part of their cultures and management processes. The study found that sustainability is being increasingly recognized as a source of cost efficiencies and revenue growth.

Amazon

Became the dominant player in online bookselling and e-books, introducing the Kindle e-reader. Continues to outdistance its rivals. Its sales have grown from $25B to $57B over the last 3 years. During the same time period, Amazon's stock soared over 100%, and its market capitalization stands at an impressive $121B as of mid-2013.

Board of Directors (BOD)

Board of Directors, elected representatives of the shareholders charged with ensuring that the interests and motives of management are aligned with those of the owners (ie; shareholders). The BOD follows guidelines to ensure that its members are independent (i.e., not members of the executive management team and do not have close personal ties to top executives) so that they can provide proper oversight, it has explicit guidelines on the selection of director candidates (to avoid "cronyism"). It provides detailed procedures for formal evaluations of directors and the firm's top officers. Such guidelines serve to ensure that management is acting in the best interests of shareholders.

Kevin Sharer

CEO of Amgen biotechnology firm that is worth $17B.

John Donahue

CEO of eBay. "Almost every company has hot moments." But only great companies achieve strong, sustainable performance over time. While it's fun to be hot; it's far more gratifying to create an enduring, sustainable business."

Strategic Management

Consists of analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Entails THREE ongoing processes: 1) STRATEGIC ANALYSIS of a firm's vision, mission, and strategic objectives from hierarchy of goals that range from broad statements of intent and bases for competitive advantage to specific, measurable strategic objectives. 2) STRATEGIC DECISIONS aka FORMULATING addresses two basic questions: "What industries should we compete in?" And, "How should we compete in those industries?" 3) ACTIONS aka STRATEGIC IMPLEMENTATION of the firm's strategies must be put into motion. This requires leaders to allocate the necessary resources and to design the organization to bring the intended strategies to reality. Managers should determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time by focusing on two fundamental questions: "How should we compete in order to create COMPETITIVE ADVANTAGE in the marketplace?" And...... "How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute. FOUR Attributes of Strategic Management: 1) Strategic management is directed toward overall organizational goals and objectives, and so, effort must be directed at what is best for the total organization. 2) Strategic management includes multiple stakeholders in decision making. 3) Strategic management requires incorporating both short-term and long-term perspectives. 4) Strategic management involves the recognition of trade-offs between effectiveness and efficiency. Effectiveness is sometimes referred to as the "doing the right thing," whereas efficiency is often referred to as the "doing THINGS right."

Strategy Formulation

Decisions made by firms regarding investments, commitments, and other aspects of operations that create and sustain competitive advantage. Strategy formulation is developed at several levels by the CEO: FIRST, business-level strategy addresses the issue of how to compete in a given business to attain competitive advantage. SECOND, corporate-level strategy focuses on two issues and is conducted at the corporate level: (a) what businesses to compete in and (b) how businesses can be managed to achieve synergy; that is, they create more value by working together than by operating as stand-alone businesses. THIRD, a firm must develop international strategies as it ventures beyond its national boundaries by asking: "What is the appropriate entry strategy into the marketplace?" and ..... "How do we go about attaining competitive advantage in international markets?" FOURTH, managers must formulate effective entrepreneurial initiatives by asking: "How do we recognize viable opportunities?" and "How do we formulate effective strategies?"

Steve Jobs

Former CEO of Apple, during 1997 through 2011. Died 10/5/2011. Genius, innovator, master showman. Gained $300B during his time with the company.

Arthur Martinez

Former Chairman of Sears. "Today's peacock is tomorrow's feather duster."

Robert Lutz

Former Chrysler Vice Chairman. "We are here to serve the shareholder and create shareholder value. I insist that the only person who owns the company is the person who paid good money for it."

Hurricane Katrina

Occured in 2007, had a disastrous effect on businesses located along the Gulf Coast.

Organizations express priorities best through stated goals and objectives that form a ________________________________.

Hierarchy of Needs

BP's Oil Well Explosion

Occurred 4/20/2010, resulting in fishing and tourism industries in the region to suffer significant downturns. BP paid $20B fine to the U.S. Government.

Stakeholders

Individuals, groups, and organizations who have a stake in the success of the organization, including owners (shareholders in a publicly held corporation), employees, customers, suppliers, and the community at large. **People who gain by the firm making a profit.

Strategic Control

Informational control: - Monitor & scan the environment. - Respond effectively to threats & opportunities Behavioral control: - Proper balance of rewards & incentives. - Appropriate cultures & boundaries (or constraints). - Effective corporate governance.

GroupOn

Initial Strategic Goals: a global e-commerce marketplace connecting subscribers with local merchants for "deals-of-the day." HOWEVER..... Growth expectations can be unrealistically optimistic in an industry where the business model is easily imitated. Leadership needs to continually assess resource needs against environmental realities - balancing growth goals against profitability, guarding against overconfidence. Poorly anticipated developments can often have very negative consequences for businesses regardless of how initially attractive their strategies were - have daily group deals turned out to be a fad? **GroupOn failed to recognize how easy it was for rivals to imitate their business, because of the extremely low entry barriers. In addition to guarding against unrealistic growth expectations, leaders must also make sure appropriate controls are in place; at GroupOn that meant establishing accounting practices that would monitor marketing costs against revenue adjusted for refunds. In addition, the business model must be adjusted for industry realities: GroupOn's business was very difficult to scale, given the need to hire extensively in order to solicit new business.

9.0 Japan Earthquake & Tsunami

Occurred on 3/11/2011, resulting in the loss of more than 20,000 lives. Japan's stock exchange, Nikkei, suffered its biggest loss in 40 years in the days following the disaster. The devastation reached all industries, especially energy companies. Tokyo Electric Power Co., which operates a nuclear power plant was severely damaged, dropping 24.7%, and Toshiba Corp., a maker of nuclear power plants, slid 19.5%. **It is said that this disaster pushed Japan back by years.

Some of the most powerful companies on the prestigious Fortune 500 list of the largest U.S. firms are:

Intel Apple Google

THREE Types of Leaders

LOCAL LINE leaders who have significant profit-and-loss responsibility. EXECUTIVE leaders who champion and guide ideas, create a learning infrastructure, and establish a domain for taking action. INTERNAL networkers who, although they have little positional power and formal authority, generate their power through the conviction and clarity of their ideas.

The overall purpose of a corporation is to maximze the _______ term return to the owners (shareholders).

LONG

Importance of Leadership

Maintaining competitive success or even surviving over long periods of time is difficult for companies of any size. If organizations do not adopt and adapt their strategies with the change in times, they will NOT survive.

Henry Mintzberg

Management Scholar at McGill University, University, argues that viewing the strategic management process as one in which analysis is followed by optimal decisions and their subsequent meticulous implementation neither describes the strategic management process accurately nor prescribes ideal practice. 26 He sees the business environment as far from predictable, thus limiting our ability for analysis. Further, decisions are seldom based on optimal rationality alone, given the political processes that occur in all organizations.

Leaders Can Make A Difference

Must be proactive - anticipate change Continually refine strategies. Be aware of external opportunities and threats. Thoroughly understand their firm's resources and capabilities. Make strategic management both a process and a way of thinking throughout the organization.

Hierarchy of Goals

Organizational goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable. *Visions, as one would expect, also have longer time horizons than either mission statements or strategic objectives.

Intellectual Assets are mainly ___________________ .

People

Efficiency (Exploration or the specializations - outside of your firm - in the surrounding environment)

Performing actions at a low cost relative to a benchmark, or "doing things right."

Operational Effectiveness

Performing similar activities better than rivals.

Leaders today must be __________________, anticipate change, and continually refine and, when necessary, make dramatic changes to their strategies.

Proactive

The main goal of creating a business is to create a _________________.

Profit

At times, a firm's __________________can be tarnished by exceedingly poor judgment on the part of one of its managers.

REPUTATION

Financial Meltdown of 2008

Resulted in deep recession during the following two years forcing corporations like General Motors and Citigroup to ask for government bailouts, and others to be acquired by new firms.

Strategic Management Process

SEE: Exhibit 1.2 Realized Strategy and Intended Strategy: Usually Not the Same SLIDE 12 of the PowerPoint presentation.

Shared Value

Shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in which it operates. A new conception of capitalism that redefines the purpose of the corporation as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. The shared value perspective acknowledges that the congruence between societal progress and value chain productivity is far greater than traditionally believed. The synergy increases when firms consider societal issues from a shared value perspective and invent new ways of operating to address them.

External Control View of Leadership

Situations in which the focus is on external factors that may positively (or negatively) affect a firm's success. (ie; economic downturns) Where the leader has limited influence, such as, economic downturns, governmental legislation, or an outbreak of major internal conflict or war - all of which can greatly restrict the choices that are available to a firm's executives. ie; Nokia being unable/unwilling to adapt to the change in markets when Apple introduced the touch screen led to their financial struggles, as well as, them later being acquired by Microsoft.

Romantic View of Leadership

Situations in which the implicit assumption is that the leader is the key force determining the organization's success - or lack thereof. (ie; Steve Jobs) This view dominates the popular press in business magazines such as Fortune, BusinessWeek, and Forbes, wherein the CEO is either lauded for his or her firm's success or chided for the organization's demise.

Strategic Management Perspective

Strategic management requires managers to take an integrative view of the organization and assess how all of the functional areas and activities fit together to help an organization achieve its goals and objectives.

Realized Strategy

Strategy in which organizational decisions are determined by both analysis (deliberate) and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences.

Intended Strategy

Strategy in which organizational decisions are determined only by analysis. The intended strategy rarely survives in its original form. Unforeseen environmental developments, unanticipated resource constraints, or changes in managerial preferences may result in at least some parts of the intended strategy remaining unrealized.

Corporate Social Responsibility (CSR)

Surveys indicate a strong positive relationship between CSR behaviors and consumers' reactions to a firm's products and services; confirming the positive influence of CSR on consumers' company evaluations and product purchase intentions across a broad range of product categories.

Operational effectiveness is NOT enough to _____________ a competitive advantage.

Sustain

Effectiveness (Exploitation of the firm's specialization)

Tailoring actions to the needs of an organization rather than wasting effort, or "doing the right thing".

Value Chain

The chain of suppliers and customers the business relies on. Includes all activities that add value to a company's products and services.

Ambidexterity

The challenge managers (imagine a CEO) face of both aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities. -FOCUS on short term efficiency. -ALIGN resources to take advantage of existing product markets. -FOCUS on long term effectiveness. -EXPAND product market scope by proactively exploring new opportunities. FOUR Ambidextrous behaviors in individuals: 1)They take time and are alert to opportunities beyond the confines of their own jobs. ie; A large computer company's sales manager became aware of a need for a new software module that nobody currently offered. Instead of selling the customer something else, he worked up a business case for the new module. With management's approval, he began working full time on its development. 2) They are brokers, always looking to build internal networks. ie; When visiting the head office in St. Louis, a Canadian plant manager heard about plans for a $10 million investment for a new tape manufacturing plant. After inquiring further about the plans and returning to Canada, he contacted a regional manager in Manitoba, who he knew was looking for ways to build his business. With some generous support from the Manitoba government, the regional manager bid for, and ultimately won, the $10 million investment. 3) They are brokers, always looking to build internal networks. ie; When visiting the head office in St. Louis, a Canadian plant manager heard about plans for a $10 million investment for a new tape manufacturing plant. After inquiring further about the plans and returning to Canada, he contacted a regional manager in Manitoba, who he knew was looking for ways to build his business. With some generous support from the Manitoba government, the regional manager bid for, and ultimately won, the $10 million investment. 4) They are multi-taskers who are comfortable wearing more than one hat. ie; Although an operations manager for a major coffee and tea distributor was charged with running his plant as efficiently as possible, he took it upon himself to identify value-added services for his clients. By developing a dual role, he was able to manage operations and develop a promising electronic module that automatically reported impending problems inside a coffee vending machine. With corporate funding, he found a subcontractor to develop the software, and he then piloted the module in his own operations. It was so successful that it was eventually adopted by operations managers in several other countries.

Social Responibility

The expectation that businesses or indiviudals will strive to improve the overall welfare of society. TODAY, demands for greater corporate responsibility have accelerated. These include corporate critics, social investors, activists, and, increasingly, customers who claim to assess corporate responsibility when making purchasing decisions. Such demands include a focus on issues such as labor standards, environmental sustainability, financial and accounting reporting, procurement, and environmental practices.

Strategy

The ideas, decisions, and actions that enable a firm to succeed. **Its all about being different.

Corporate Governance

The relationship among various participants in determining the direction and performance of corporations. The primary participants are (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors.

Strategy Analysis

The study of firms' external and internal environments, and their fit with organizational vision and goals. It consists of the "advance work" that must be done in order to effectively formulate and implement strategies. -> Analyzing Organizational Goals and Objectives (Chapter 1) A firm's vision, mission, and strategic objectives establish a hierarchy of goals that range from broad statements of intent and bases for competitive advantage to specific, measurable strategic objectives. -> Analyzing the External Environment of the Firm (Chapter 2) Managers must monitor and scan the environment as well as analyze competitors. Two frameworks are provided: (1) the general environment consists of several elements, such as demographic and economic segments, and (2) the industry environment consists of competitors and other organizations that may threaten the success of a firm's products and services. -> Assessing the Internal Environment of the Firm (Chapter 3) Analyzing the strengths and relationships among the activities that constitute a firm's value chain (e.g., operations, marketing and sales, and human resource management) can be a means of uncovering potential sources of competitive advantage for the firm. -> Assessing a Firm's Intellectual Assets (Chapter 4) The knowledge worker and a firm's other intellectual assets (e.g., patents) are important drivers of competitive advantages and wealth creation. We also assess how well the organization creates networks and relationships as well as how technology can enhance collaboration among employees and provide a means of accumulating and storing knowledge.

Bottom Line

Total Profits from the Total Sales of the organization.

Popular management innovations of the last two decades:

Total Quality Just-In-Time Benchmarking Buesiness process reengineering Outsourcing ^^All of which concern operational effectiveness.

Top Line

Total Sales of the Organization in the marketplace.

Between 2009 and 2013, admittedly more ____________ years than most, over one hundred companies - including Bear Stearns, Chrysler, Circuit City, Merrill Lynch, RadioShack, and Tribune - dropped off the Fortune 500 list.

volatile