Exam 3 chapter 6, 8, 9, 11

STRATEGIC PLAN ESSENTIALS

Create a plan that: • Is compatible with the firm's values. • Accomplishes the firm's mission (purpose) and objectives • Gives the investors the best chance to receive the highest return on investment • Builds on the firm's strengths and reduces weaknesses so they can take full advantage of external opportunities and counter external threats.

What is opportunities

Elements in a company's external environment that allow it to formulate and implement strategies to increase profitability

What is threats

Elements in the external environment that could endanger the integrity and profitability of the business

A capital expense can either be tangible or intangible

Example of tangible is a machine example of intangible is patent

written goals and budgets can do what?

Keep people focused and gives you something to compare.

What is our goal?

Maximize profits, not production.

technically efficient

Maximum output from each unit of input.

Strategic plan (SWOT)

Strengths weaknesses opportunities threats

what is All three budgets are tied to?

The marketing plan.

One person or an executive team has the responsibility of

approving all relevant decisions, which they communicate through various levels of management.

What are critical task

are activities that must be done well if the business is going to achieve its purpose and objectives.

What are line employees in a company

are those directly involved in the daily operations of a business by selling or producing a product or service.

What is a line position in a company

are those that have the responsibility and authority for achieving the major goals of the corporation.

Centralized management

is best used in companies that prioritize their manufacturing strategy and reducing operating costs

What is centralized organization organizational structure

is one that relies heavily on top-down decision-making.

Average Product

is the average output produced by each input.

Emerging industries often employ a decentralized organizational structure because

it's easier to move employees to different roles and change their responsibilities.

We have to know something more, than just the physical

we need to know prices in order to calculate profitability.

The budget can help you detect what?

when something is not going right in the business and help you identify problems.

What is incremental analysis

refers to additional returns and costs from producing the next unit output. • As long as incremental revenue is greater than incremental costs, you expand until they are equal. <<<<<< IMPORTANT KNOW THIS

How strategic management fits in

-Return on invested capital -good implantation is key

What are two sources of sustainable competitive advantage

-lowest cost provider (products lower prices) -differentiated product (higher prices)

WHAT ARE THE FOUR PRINCIPLES OF ORGANIZATION DESIGN?

1. Keep the organizational structure simple 2. Give critical tasks prominence and allow them to function without restriction 3. Minimize support staff

External environment for strategic plan

1. Market opportunities (will raise ROIC) 2. Market threats (will lower ROIC)

What are the three types of budgets

1. Operating budget 2. Cash flow budget 3. Capital expenditure budget

What are budget benefits?

1. Provides a measure of business performance 2. Keeps managers focused on the financial impact of their decisions 3. Quickly communicates financial expectations 4. Allows quick spotting of deviations

What are the 4 elements of a sustainable competitive advantage:

1. Superior efficiency 2. superior quality 3. Superior innovation 4. superior customer responsiveness

Internal environment of strategic plan

1. The firms strengths (will raise ROIC) 2. The firms weaknesses (will lower ROIC)

Michal PORTER'S FIVE FORCES MODEL

1. The threat of new businesses entering your market 2. The threat of new products entering your market 3. The growing bargaining power of suppliers 4. The growing bargaining power of buyers 5. The level of rivalry among existing firms in the industry

(Start of chapter 8) Why are budgets important? And what is budget?

A budget is a blueprint for action for a specific period that is based on sales, costs, and productivity estimates developed in the marketing plan.

What is good implementation

A great plan with poor execution is the same as having no plan

What is return on invested capital (ROIC) u

Best measure of long-run efficiency and effectiveness

The mission statement defines two things:

Business purpose and business objective

THREE WAYS TO ORGANIZE

By Business Function By Product By geographic area

What is Strengths

Characteristics of a business which give it advantages over its competitors

What is weaknesses

Characteristics of a business which make it disadvantages relative to competitors

How do you start your organization process

Identifying critical task for success

ECONOMIC EFFICIENCY

Is The technique of comparing added costs to added returns to find the most profitable production levels is called incremental analysis.

What is strategic management

Is the process of settling goals, producers, and objectives in Oder to make a company or organization more competitive.

What is a vision statement?

Is what you want you aspire your business to be. example: you want your restaurant to be known for the best service etc.

How do you know how your business is doing?

Need to dissect the budget and understand the business. • "You go to be a knowing where your money is going." Andy Stanley

What drives all three budgets?

Sales estimates

"How do I enhance my firm's edge today in this larger, faster moving, much more competitive market environment?"

Strategic management -planning -execution -monitoring developments and progress

What is cash flow budget?

Summarizes the amount and timing of cash in and out of the business for the next budget period. • Develop after the operating budget. • Timing is everything, need to understand when money is coming in and out. • Even profitable firms can be short on cash and not be able to meet business needs

What is operating budget?

Summarizes the expected sales, production, and profit and related costs for the next budget period. • Start with sales! (marketing plan) • Estimate costs (variable and fixed costs)

What is capital expenditure budget?

Summarizes the plant, property, and equipment expenses for the next budgetary period. - Capital expenditures budget is typically constrained by the cash flow and operating budgets.

Marginal product

The contribution of each unit of input to output.

Economically Efficient

The level of output that will generate the greatest profits.

Staff Activities

The primary purpose of staff positions in most companies is to provide assistance and specialized advice and expertise to colleagues in line positions. Staff functions include human resources, maintenance, legal, accounting and public relations.

The implementation of the strategic plan

The real test of management commitment to keeping the business competitive. • Can be the hardest part of the process.

Porter's Five Forces analysis

Threat of new entry supplier power threat of substitution buyer power competitive

Why is organizing so important?

We need a structure that can help us reach our planned goals. Essential part of turning your plans into a profitable business.

Three decisions of production

What to produce • We get this from the marketing folks. how to produce • Production folks know this. how much to produce • Economics tells us this.

Equi-marginal Allocation Principle

any limited input should be allocated between two or more products so that the total profit cannot be increased by taking one unit away from one product and using it to produce another.

Both intangible and tangible capital expenditures are usually?

considered assets since they can be sold when there is a need.

What is the production function

describes the technical relationship between inputs and outputs by summarizing the physical output possible from different levels of physical inputs.

Decentralized organization involves?

dispersing decision-making powers among multiple employees or departmental teams.

typically strategic management looks at what?

effectively deploying staff and resources to achieve these goals.

What is a value statement?

explains how the business and all its employees are going to conduct themselves.

Why is developing and writing a budget important ?

gives managers the best chance for success. (PLANNING IS KEY)

Centralization

is also helpful for encouraging collaboration between departments, streamlining best practices and coordinating with external stakeholders or third-party vendors. This is typically a more traditional organizational structure.

What is decentralized structure

is best for companies who want to respond quickly when confronting regionally differentiated customer needs or change products based on individual markets. is also great for empowering employees to present new ideas and increasing career growth opportunities, because of a more relaxed chain of command model.

Diminishing marginal product

reveals that as inputs are added, they become less and less productive over time. Bigger is not always more profitable.

Define budget

the financial plan of management's expectations for the business in the future.

By Product

• A business unit is created for each product. • Each unit operates essentially as a separate business. • Advantages: Can respond quickly to changes and specialize. • Disadvantages: lose some operational efficiencies and central administration gives up some control.

By Business Function

• Basic business functions (sales, accounting, HR, inventory, etc..) • All done in one location. • Works best if all the firm's products can be handled the same way (economies of scale) • Disadvantage: Can limit the firm's ability to make quick or unique change

LIMITS OF BUDGETS

• Budgets are estimates, not sure things • Executionofabudgetisnotautomatic • Budgets do not take the place of good management • Good budgeting requires time and patience

What are THE THREE PARTS OF A STRATEGIC PLAN

• Business vision statement . Mission statement • The strategic plan

By geographic area

• Each business unit handles the sales of the entire firm's products sold in a specific geographic area. • Works well when the entire market for the firm's products in a specific geographic area is unique and quickly changes. • Disadvantages: reduces central management's control over the unit and lose some operational efficiencies.

What are the two types of capital expenditure

• Expenses to maintain levels of operation present within the company and • Expenses that will enable an increase in future growth.

What are two ways to measure performance?

• Measure against the goals you set for your business. • Measure against the competition

Three parts of a strategic plan

• The implementation of the strategic plan • Strategic Planning is an ongoing process and never ends. • Market disruptions and innovation always occur

The business purpose:

• What group of customers is the business product going to satisfy? • What is the unmet need of customers that the business is going to fulfill?