EXAM ONE REVIEW QUESTIONS
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF CONDUCTING A FINANCIAL RATIO ANALYSIS OF A FIRM?
*ADVANTAGES* - financial ratios enable a firm to obtain a quick assessment of its overall performance - three comparisons lend themselves to financial ratio analysis... [1] *historical comparisons* --> the trend in various financial ratios over time [2] *comparison with industry norms* --> enables a firm to determine whether or not it looks competitive within the industry [3] *comparison with competitors* --> provides a set of benchmarks that track the firm's competitiveness *DISADVANTAGES/LIMITATIONS* - the quality of the accounting data on which the ratios are calculated - the ratios do not provide any direction as to how managers should invest resources to generate future sustainable competitive advantages
WHAT ARE THE FOUR ATTRIBUTES OF STRATEGIC MANAGEMENT?
*[1]* directs the organization toward overall goals and objectives *[2]* includes multiple stakeholders in decision-making *[3]* needs to incorporate short-term and long-term objectives *[4]* recognizes trade-offs between efficiency and effectiveness
WHAT IS GATHERING AND ANALYZING COMPETITIVE INTELLIGENCE, AND WHY IS IT IMPORTANT FOR FIRMS TO ENGAGE IN IT?
*competitive intelligence* is a firm's activities of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitors' strengths and weaknesses. it is not spying, fortune-telling, simple data collection, or an isolated activity within a firm. the purpose of competitive intelligence is to increase management's awareness of developments in the external environment, thereby increasing the quality of strategic decisions.
WHAT IS "CORPORATE GOVERNANCE" AND WHAT ARE ITS THREE ELEMENTS?
*corporate governance* is the relationship among various participants in determining the direction and performance of corporations. it is designed to focus the efforts of the CEO on maximizing long-term shareholder wealth. the board of directors is elected or chosen by shareholders, and is charged with monitoring and evaluating CEO performance. *THREE PRIMARY PARTICIPANTS* *[1]* the shareholders *[2]* the management [led by the CEO] *[3]* the board of directors
WHAT IS MEANT BY A "HIERARCHY OF GOALS", AND WHAT ARE ITS MAIN COMPONENTS?
*hierarchy of goals* refers to goals ranging from those that are less specific yet able to evoke powerful and compelling mental images [at the top] to those that are more specific and measurable [at the bottom] *MAIN COMPONENTS* [1] top --> *the organizational vision*, which evokes powerful and compelling mental images, [2] middle --> *the mission statement*, which includes both the purpose of the organization, its scope of operations, and the basis of its competitive advantage [3] bottom --> *the strategic objectives*, which include shorter-term, specific, and measurable goals that guide middle-level managers as they implement the mission statement
DISCUSS THE NEED FOR MANAGERS TO USE SOCIAL CAPITAL IIN LEVERAGING THEIR HUMAN CAPITAL BOTH WITHIN AND ACROSS THEIR FIRM.
*social capital* is the network of relationships and friendships among talented professionals both inside and outside the organization. *human capital* can, in theory, be developed without any interaction between professionals in an organization. however, most activities in firms require professionals to work in combinations, each lending different types of expertise to completing projects. social capital also recognized that workplace interactions involve friendships and mutual respect that motivate professionals, encourage loyalty and facilitate learning and human capital development. social capital also helps to attract and retain talent. because social capital also characterizes interpersonal relationships across firms, it helps the firm to work with suppliers, buyers, and other partners through joint projects and information exchange. managers can take network theory into account when developing social capital. they can put key individuals in positions with high centrality. specific groups can be managed with closure in order to limit the unwanted spread of sensitive information. and in cases where barriers prevent key groups from interacting, thus creating structural holes, managers can create bridging relationships that will give other groups access to an optimal range of information and talent.
EXPLAIN THE CONCEPT OF "STAKEHOLDER MANAGEMENT".
*stakeholder management* is where multiple individuals or groups, who have a stake in or can influence an organization's performance, are included in the strategic management process. so, top managers will be interested in satisfying the needs of shareholders and other stakeholders such as customers, suppliers, employees, creditors, government, and the community.
EXPLAIN THE CONCEPT OF STRATEGIC GROUPS. WHAT ARE THE PERFORMANCE IMPLICATIONS?
*strategic groups* are groups of firms, usually within an industry, that share similar strategies. the performance implications are that firms can group themselves with close competitors and... *[1]* identify barriers between groups, *[2]* identify positions within the industry that are marginal or tenuous, and *[3]* chart directions for future strategic development. *strategic group analysis* is a more fine-grained way to conduct competitor analysis, as the competitive environment of an industry may differ from the competitive environment of the strategic group.
DISCUSS THE THREE KEY ACTIVITIES IN THE STRATEGIC MANAGEMENT PROCESS.
[1] *ANALYSES:* also called strategy analysis, refers to managers' development of an understanding of the organization's internal and external environment, and the organization's overarching goals [2] *DECISIONS:* also called strategy formulation, refer to the overall plans that firms develop to compete and outperform their rivals; these plans exploit the results of analyses, in that firms try to use their strengths, limit weaknesses, exploit opportunities, and defend against threats simultaneously [3] *ACTIONS:* also called strategy implementation, refer to ensuring that proper strategic controls and organizational designs are put in place to carry out the strategy
DISCUSS AND DESCRIBE THE SIX ELEMENTS OF THE EXTERNAL ENVIRONMENT.
[1] *DEMOGRAPHIC SEGMENT:* refers to the statistics of a population, such as age, income characteristics, ethnic groups, and geographic distribution. [2] *SOCIOCULTURAL SEGMENT:* refers to the values, beliefs, and lifestyles of a country. [3] *POLITICAL/LEGAL SEGMENT:* refers to the creation and use of power within a country, including the effect of various regulations, including the areas of environmental protection, employment discrimination protection, and taxes. [4] *TECHNOLOGICAL SEGMENT:* refers to new products and services derived from advances in engineering, applied science, and/or pure science. these new products and services can change manufacturing processes, create new industries, and alter the boundaries between industries. [5] *ECONOMIC SEGMENT:* refers to the level and change in monetary and macroeconomic factors such as unemployment, inflation, interest rates, and economic growth. [6] *GLOBAL SEGMENT:* refers to the effects on the country's business environment from abroad, and include factors such as foreign competition, foreign market opportunities, foreign supply opportunities, legal changes due to international treaties, and regional economic integration.
FOUR PROBLEMS OF SWOT ANALYSIS
[1] *SWOT may identify strengths, but these do not always translate into competitive advantages.* to generate competitive advantages, firms have to understand the source of their strengths and focus resources on developing them. [2] *SWOT has a too narrow focus on the external environment.* often, a firm's future growth comes from peripheral or emerging parts of the market. [3] *SWOT is static.* over time, all aspects of a firm's environment may change, and SWOT does not offer insights into the processes that cause the change, or how a firm needs to adapt to a dynamic environment. [4] *SWOT may overemphasize single strategic dimension.* this overemphasis may lead to neglect of other important factors that affect a firm's performance.
WHAT ARE SOME OF THE LIMITATIONS IN USING FIVE-FORCES ANALYSIS?
[1] *the implication that low-profitability industries should be avoided may not be optimal.* low-profitability industries may be profitable opportunities for firms with innovative business models that change the competitive landscape. [2] *the five forces model assume a zero-sum game, with a firm's loss of profitability associated with another firm's gain.* however, through strategic alliances or other forms of collaboration with suppliers, buyers, or other industry players, firms can gain both profitability and competitiveness. [3] *the five forces model is static and does not account for constant changes in competitive position that characterize many industries.* included in the dynamic analyses is the effect of complements, or other products and services that affect the value of a firm's own products and services. for example, software is a complement to hardware. dynamic interactions between firms and complements can affect the profitability prospects for a firm outside of the five forces model.
WHAT ARE THE ADVANTAGES OF A SWOT ANALYSIS?
a *SWOT analysis* is a technique to analyze the internal and external environments of a firm. SWOT provides a useful starting point for improving firms and better positioning them for success.
DESCRIBE THE PRIMARY AND SUPPORT ACTIVITIES IN A FIRM'S VALUE CHAIN.
a firm's *value chain* consists of a firm's value-creating activities *PRIMARY ACTIVITIES* are sequential activities that pertain to the physical creation of the product or service, its sale and transfer to the buyer, and its service after sale; including inbound logistics, operations, outbound logistics, marketing and sales, and service. *SUPPORT ACTIVITIES* either add value by themselves or add value through important relationships with both primary activities and other support activities; including procurement, technology development, human resource management, and general administration
WHAT ARE SOME OF THE POTENTIAL DOWNSIDES FOR FIRMS TO ENGAGE IN A "WAR FOR TALENT"?
a war for talent implies that an organization focuses on attracting and retaining talented professionals by offering competitive salaries -- usually at least slightly exceeding what the competition offers. this type of human capital development strategy is likely to be expensive and limiting. professionals take a lot of factors into consideration when accepting a position, and salary is usually not the most important. therefore it makes sense to attract and retain human capital using appeals besides pay. an alternative to the war for talent is to encourage development of firm-specific characteristics such as an attitude of team-orientation, and identification with the organization's mission and values. such practices will help firms develop differentiated human capital and limit professionals' focus on finding alternative employment.
WHY IS IT IMPORTANT FOR MANAGERS TO RECOGNIZE THE INTERDEPENDENCE IN THE ATTRACTION, DEVELOPMENT, AND RETENTION OF TALENTED PROFESSIONALS?
all three steps are important for efficiently and effectively developing intellectual capital. to illustrate, consider what happens if any one step is weak. if attraction were weak, then the firm would not be able to hire sufficient numbers of capable employees to replace retirees, grow intellectual capital, or select capable professionals for its organization. if development were weak, then the firm would not be able to increase the intellectual capital of its staff to compete effectively. if retention were weak, then the firm would be investing its scarce capital into selecting and developing replacements for the professionals who are leaving.
WHY MUST MANAGERS BE AWARE OF A FIRM'S EXTERNAL ENVIRONMENT?
being responsive to the external environment enables firms to avoid strategic mistakes. it is possible for firms to become internally focused, efficient producers of obsolete goods and services. rather, managers need to respond to opportunities and threats from the external environment in order to develop the most successful products and services.
HOW CAN "CORPORATE GOVERNANCE" BE IMPROVED?
corporate governance can be improved by including other stakeholder representatives on the board of directors. these other members would ensure that top management will respond to these interests and become more socially responsible in addition to earning profits. managers will respond to and exploit overlapping stakeholder interests, which can lead to increased long-term profits. another way to improve corporate governance is to align managerial incentives with organizational performance. this alignment is often done through incentive-based pay or compensation through stock options. rather than pursuing self-interest such as perks and salary, top managers will be motivated to make their organizations succeed.
DESCRIBE HOW THE FIVE FORCES CAN BE USED TO DETERMINE THE AVERAGE EXPECTED PROFITABILITY IN AN INDUSTRY.
each force can be looked at as a way that the industry environment limits a firm's ability to earn profits through either raising prices or lowering costs. [1] *threat of new entrants* --> limits a firm's ability to raise prices because then a new entrant may decide to enter the industry an offer a lower price [2] *bargaining power of buyers* --> directly limits a firm's ability to raise prices [3] *bargaining power of suppliers* --> directly limit a firm's ability to lower costs [4] *threat of substitute products and services* --> limits a firm's ability to raise prices because customers would then buy the substitutes [5] *intensity of rivalry among competitors in an industry* --> limits a firm's ability to raise prices because then customers would buy from a competitor
UNDER WHAT CONDITIONS ARE EMPLOYEES AND MANAGERS ABLE TO APPROPRIATE SOME OF THE VALUE CREATED BY THEIR FIRM?
employees and managers sometimes have the capability to consume a firm's earnings in the form of salary perks. four conditions that determine their ability to do so are... *[1]* employee bargaining power, due to their unique skills and abilities *[2]* employee replacement cost, due to the rareness of employee skills *[3]* employee exit cost, which is the ability of the employee to find alternative employment, and associates with lower ability to appropriate earnings *[4]* manager bargaining power, due to managers' information about the integrated understanding of the firm's total operations
WHY DO FIRMS NEED TO HAVE A GREATER STRATEGIC MANAGEMENT PERSPECTIVE AND EMPOWERMENT IN THE STRATEGIC MANAGEMENT PROCESS THROUGHOUT THE ORGANIZATION?
in today's complex and dynamic business environment, top managers do not have the answers. rather, top managers will be responsible for communicating their firms' strategies to lower-level managers, and in turn empower these managers with discretion to respond quickly and appropriately to opportunities as they arise. such empowerment enables a firm to respond more quickly to the needs of customers and stakeholders, thus improving competitiveness.
WHY SHOULDN'T MANAGERS BE SOLELY INTERESTED IN STOCKHOLDER MANAGEMENT, THAT IS, MAXIMIZING THE RETURN FOR OWNERS OF THE FIRM -- ITS SHAREHOLDERS?
managers who are interested solely in stockholder management are likely to make decision that satisfy short-term profit objectives. these decisions might include downsizing, neglect of asset maintenance, or put pressure on suppliers to lower prices. however, these decisions are likely to adversely affect long-term performance. top managers who pay attention to all stakeholders are less likely to make decisions counter to the firm's objective of long-term profit maximization.
HOW CAN MANAGERS CREATE VALUE BY ESTABLISHING IMPORTANT RELATIONSHIPS AMONG THE VALUE-CHAIN ACTIVITIES BOTH WITHIN THEIR FIRM AND BETWEEN THE FIRM AND ITS CUSTOMERS AND SUPPLIERS?
relationships among value chain activities can improve firm operations, leading to better quality products or lower costs. for example, the human resource management practice of encouraging transfer of employees across divisions can improve employee morale, transfer of information and ideas across divisions, and thereby improve operations. a relationship between inbound logistics and suppliers can lead to implementation of just-in-time management, which can reduce inventory cost and improve product quality.
HOW CAN "SYMBIOSIS" [INTERDEPENDENCE, MUTUAL BENEFIT] BE ACHIEVED AMONG A FIRM'S STAKEHOLDERS?
stakeholder management will, in part, be tricky because of competing interests. for example, customers may want lower prices while shareholders might want higher prices [which may lead to higher profits]. however, stakeholder symbiosis can also result because stakeholders depend on each other for success and well-being. firms can achieve *stakeholder symbiosis* by learning stakeholder interests and looking for overlaps. the inclusion of stakeholders such as the community, government, and environmental groups can also increase a firm's reputation. for example, firms that use a *triple bottom line* and evaluate their performance in financial, social, and environmental dimensions are likely to have good reputations with customers, governments, and the community at large.
EXPLAIN THE FOUR CRITERIA FOR SUSTAINABILITY OF COMPETITIVE ADVANTAGES.
strategic resources that lead to firms' sustainable competitive advantage must be... [1] *valuable* --> in order to give the firms competitive advantages [2] *rare* --> or else competitors will be able to obtain the advantages too [3] *costly to imitate* --> or else competitors will be able to replicate the competitive advantages; four factors that limit resource imitation are physical uniqueness, path dependency, causal ambiguity, social complexity [4] *costly to substitute* --> or else competitors will be able to create a similar competitive advantage that serves the same function
DISCUSS THE KEY ROLE OF TECHNOLOGY IN LEVERAGING KNOWLEDGE AND HUMAN CAPITAL.
technology can be used to share information, increase collaboration, and codify knowledge. for *sharing information*, email has the advantage of being nearly costless and spanning geographical boundaries. videoconferencing is increasingly being used to mimic face-to-face meetings across large distances. for *increasing collaboration*, email, videoconferencing, and internal networks enable formation of electronic teams, or teams that complete tasks primarily through electronic communications. electronic teams can span geographic regions, departments within the organization, or even enable collaboration with suppliers or buyers. for *codifying knowledge*, technology enables the creation of in-house databases that can be used to solve problems. for example, if one professional develops a solution to a problem and then codifies it, then the codified solution can be used to help solve future problems of that type. all these practices enhance firms' knowledge and human social capital.
WHAT ARE THE MAIN ADVANTAGES OF THE BALANCED SCORECARD?
the advantages of the balanced scorecard are that it incorporates more information about firm operations than financial ratio analysis about firm's basis for sustainable competitive advantage. therefore, it should be a better indicator of future organizational success.
SUMMARIZE THE CONCEPT OF THE BALANCED SCORECARD.
the balanced scorecard is a method of evaluating a firm's performance using performance measures from the customers', internal, innovation and learning, and financial perspectives. these measures include the financial perspective from financial ratio analysis, but also include measures of other firm processes that should pertain to developing sustainable competitive advantage. the customers' perspective includes measures of customers satisfaction. the internal perspective includes the ability of the firm's organization to efficiently and effectively create products and services that satisfy customers' needs. the innovation perspective includes measures of the firm's ability to change operations in order to keep up with the dynamic business environment.
EXPLAIN HOW THE GENERAL ENVIRONMENT AND INDUSTRY ENVIRONMENT ARE HIGHLY RELATED.
the general environment can affect all of the five forces in various ways. a growing economy can reduce the intensity of rivalry within the industry because it will be scrambling to meet growing demand.
WHY IS IT IMPORTANT FOR MANAGERS TO RECOGNIZE THE INTERDEPENDENT NATURE OF THE STRATEGIC MANAGEMENT PROCESS ACTIVITIES?
the interdependent nature of these activities stems from various feedback mechanisms that occur as managers implement their firms' strategies. unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences will force firms to modify their intended strategy, combining it with an emergent strategy, and resulting in a realized strategy. the realized strategy will in turn be modified by further unforeseen events. the continually modified realized strategy will consist of refined analyses, decisions, and actions that are constantly being updated.
WHY MUST CONSISTENCY BE ACHIEVED AMONG THE "HIERARCHY OF GOALS"?
there must be consistency among these goals in order to maximize employee motivation and a sense of equity and fairness when rewards are allocated. inconsistency among the goals between any level can result in confusion among employees as to what the firm values, and subsequently to loss of identification with the firm, loss of motivation, and turnover.
EXPLAIN THE ROLE OF KNOWLEDGE IN TODAY'S COMPETITIVE ENVIRONMENT.
to understand the competition that a firm faces, it must understand competitors' [as well as buyers', suppliers', and potential entrants'] intellectual capital. firms are no longer important because of how they manage things, but rather because of how they manage knowledge. most of their market value is likely to be intellectual capital. therefore, firms will have to understand competitors' human capital and social capital, as well as their explicit knowledge and tacit knowledge.
