Global Strategy Final Exam

Four Stages of Culture Compatability

Integration - Relatively balanced give and take. Equal merger of both cultures into new corporate culture Assimilation - Involves the domination of one organization over the other. Acquiring firms culture kept intact, but subservient to that of acquiring firm's corporate culture Separation - Characterized by a separation of the two companies' cultures. Structurally separated, without cultural exchange. Conflict in cultures capped intact, but kept separate in different units Deculturation - Involves the disintegrated of one company's culture resulting from unwanted and extreme pressure from the other to impose its culture/practices. Forced replacement of conflicting acquired firm's culture with that of the acquiring firm's culture.

Benchmarking

Is the continual process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders.

Lead Users

"companies, organizations, or individuals that are well ahead of market trends and have needs that go far beyond those of the average user.

Six Sigma Steps

(1) Define a process where results are poorer than average. (2) Measure the process to determine exact current performance (3) Analyze the information to pinpoint where things are going wrong (4) Improve the process and eliminate the error (5) Establish controls to prevent future defects from occuring

Five reasons why owners, operators, and outside observers should be wary of using standard financial methods to indicate the health of a small, privately owned company:

(1) The line between debt and equity is blurred In some instances, what appears as a loan is really an easy-to-retrieve equity investment. The entrepreneur in this instance doesn't want to lose his or her investment if the company fails. (2) Lifestyle is a part of financial statements The lifestyle of the owner and the owner's family is often reflected in the balance sheet. The assets of some firms include beach cottages, mountain chalets, and automobiles. In others, plants and warehouses that are used for company operations are not shown because they are held separately by the family. Income statements may not reflect how well the company is operating. Profitability is not as important in decision making in small, private companies as it is in large, publicly held corporations. (3) Standard financial formulas don't always apply Following practices that are in contrast to standard financial recommendations, small companies often use short-term debt to finance fixed assets. The absence of well-organized capital markets for small businesses, along with the typical banker's resistance to making loans without personal guarantees, leaves the private owner little choice. (4) Personal preference determines financial policies Because the owner is often the manager of the small firm, dividend policy is largely irrelevant. Dividend decisions are based not on stock price but on the owner's lifestyle and the tradeoff between taking wealth from the corporation and double taxation. (5) Banks combine personal and business wealth Because of the large percentage of small businesses that go bankrupt every year, bank loan officers are reluctant to lend money to a small business unless the owner also provides some personal guarantees for the loan. In some instances, part of the loan may be composed of a second mortgage on the owner's house.

A study of 111 successful and 86 unsuccessful product innovations found that the successful innovations had some or all of the following features:

(1) They were moderately new to the market. (2) They were based on tried-and-tested technology. (3) They saved money, met customers' needs, and supported existing practices. In contrast, the unsuccessful innovations had a different set of characteristics: (1) They were based on cutting-edge or untested technology. (2)They followed a "me-too" approach. (3) They were created with no clearly defined solution in mind

Developmental Stages: I to IV

(I) SIMPLE STRUCTURE: Small team, or entrepreneur who founds a company to promote an idea (product/service. (II) FUNCTIONAL STRUCTURE: Point when the entrepreneur is replaced by a team of managers who have functional specializations. (III) DIVISIONAL STRUCTURE: Corporation manages diverse product line in numerous industries. (IV) BEYOND SBU's: Corporation that is very large and complex to manage.

Strategic Leadership Characteristics

1. Background Strategic leadership is multifaceted and mostly a top down phenomenon. While not all leaders are at the top of the pyramid, those who are effective, need to be endowed with strong leadership qualities. The six components of the strategic leadership model, developed by Hitt, Ireland and Hoskisson (1995), are (1) determining strategic direction, (2) exploiting and maintaining core competencies, (3) developing human capital, (4) sustaining an effective corporate culture (5) emphasizing ethical practices and (6) establishing strategic controls. 2. Determining Strategic Direction For these Abdalla, Hagen et al., this means developing a long term vision, which means five to ten years, and "leveraging" the firm's, or the organization's, resources and abilities to achieve, what initially seem to be, unattainable goals. This means that all employees seek to fulfil specific performance standards and believe in their "product and industry". 3. Exploiting and Maintaining Core Competencies Corporate managers (CEO's make decisions by means of which, the enterprises they lead develop, strengthen, maintain, leverage, and exploit" core competencies. These core competencies are intangible, knowledge based resources, and effective strategic leaders promote the sharing of them across the units or divisions. 4. Developing Human Capital Human capital is equated with the knowledge and skills of the workforce. Training and development programs should be encouraged to build skills and improve communication. 5. Sustaining Effective Corporate Culture The core values shared by the majority of employees constitute corporate culture. Ideologies, symbols, and values influence the way a company conducts its business. A strong and "appropriate" corporate culture enhances entrepreneurial spirit, facilitates long-term vision, and emphasizes strategic action, leading to high quality goods and services. 6. Emphasizing Ethical Practices Effective strategic leadership places a high value on ethical organizational practices. The organization is able to shape and control behavior by means of rules, adherence to which is rewarded, while disregard of corporate culture is sanctioning. 7. Establishing Strategic Control Leadership and strategic control operate in tandem. To attain desired outcomes, corporate leaders must understand the strategies being implemented and focus control mechanisms on the content of strategic action. Strategic control impels lower level managers to make decisions and accept a reasonable degree of risk. Frequently, such control is combined with a level of autonomy that allows business units to gain competitive advantages. It promotes sharing of resources, flexibility, and innovation.

Three complications to strategy implementation in particular can be highlighted:

1. Decentralization is complicated: The difficulty of setting objectives for an intangible, hard-to-measure service mission complicates the delegation of decision-making authority. Because of the heavy dependence on sponsors for revenue support, the top management of a not-for-profit organization must be always alert to the sponsors' view of an organizational activity. 2. Linking pins for external-internal integration become important: Because of the heavy dependence on outside sponsors, a special need arises for people in buffer roles to relate to both inside and outside groups. This role is especially necessary when the sponsors are diverse, and the service is intangible with a broad mission and multiple shifting objectives. 3. Job enlargement and executive development can be restrained by professionalism: In organizations that employ a large number of professionals, managers must design jobs that appeal to prevailing professional norms. Professionals have rather clear ideas about which activities are, and which are not, within their province. Because a professional often views managerial jobs as nonprofessional and merely supportive, promotion into a management position is not always viewed positively.

Balanced Scorecard Criteria

1. Financial: How do we appear to shareholders? 2. Customer: How do customers view us? 3. Internal business perspective: What must we excel at? 4. Innovation and Learning: Can we continue to improve and create value?

Activity Based Costing (ABC)

An accounting method for allocating indirect and fixed costs to individual products or product lines based on the value-added activities going into that product.

Advisory Board

An advisory board is a group of external business people who voluntarily meet periodically with the owner-managers of the firm to discuss strategic and other issues. The members are usually invited to join the board by the president of the company. The advisory board has no official capacity but is expected to provide management with useful suggestions and act as a sounding board. The members typically receive no compensation for serving. It is important to staff the advisory board with knowledgeable people who have significant business experience or skills who can complement the background and skills of the company's owner-managers. Using an advisory board is an easy way to obtain free professional consulting advice. Research indicates that advisory boards improve the performance of small businesses.

Six Sigma Definition

An analytical method for achieving near-perfect results on a production line. Reduces defects to 3.4 million per units produced - thus saving money by preventing waste.

Performance Appraisal System

An approach to identifying good performers with promotion potential.

Total Quality Management

An operational philosophy committed to customer satisfaction and continuous improvement. Aims to reduce costs and improve quality, it can be used as a program to implement an overall low cost or a differentiation business strategy.

Budgets

Begins after programs and tactical plans have been developed. A budget is the last real check a corporation has on the feasibility of its selected strategy.

Balanced Scorecard Definition

Combines financial measures that tell the results of actions already taken with operational measures on customer satisfaction, internal processes, and the corporations innovation and improvement activities- the drivers of future financial performance.

Global Companies

Companies that manufacture and sell the same products, with only minor adjustments made for individual countries around the world: automobiles, tires, television sets.

Multi Domestic Companies

Companies that tailor their products to the specific needs of consumers: retailers, insurance, banking.

Complying with Sarbanes Oxley

Complying with the Sarbanes-Oxley Act is becoming a cost burden for small publicly held U.S. companies. Companies face higher audit and legal fees, new internal control systems, and higher directors' and officers' liability insurance premiums, among other expenses.

Organizational Life Cycle

Describes how organizations grow, develop and eventually decline. Birth, Growth, Maturity, Decline, Death

Mergers

Dwindling resources are leading an increasing number of not-for-profits to consider mergers as a way of reducing costs through economies of scope and reducing program duplication and raising prices because of increased market power.

Retrenchment Suggesting for Cutting Costs

Eliminate unnecessary work instead of making across the board cuts Contract out work that others can do cheaper Plan for long-run efficiencies Communicate the reasons for actions Invest in the remaining employees Developed value added jobs to balance out job elimination

Input Controls

Emphasize resources, such as knowledge, skills, abilities, values, and motives of employees.

Performance Bases vs Traditional Pay Comparative: Pure Performance Based Pay

For purposes of this illustration we presume that pay increases are based strictly on merit in accordance with pre-set goals and evaluation criteria. Note that, as noted by Shari Caudron, in a pure performance pay system base pay never changes. The result in this, admittedly biased, exercise is that even though the average annual percentage over four years is 6.25% as opposed to 5% in the traditional example, the employee earns an aggregate of $5,514 less over five years.

Retrenchment

Guidelines proposed for successful downsizing.

Professional Liquidator

If a company cannot be saved, a professional liquidator might be called on by a bankruptcy court to close the firm and liquidate its assets.

Blocks to Change

LOYALTY TO COMRADES: Good at beginning, soon becomes a liability as favoritism TASK ORIENTED: Focusing on job is critical at first but then becomes excessive attention to detail. SINGLE-MINDEDNESS: Vision needed to introduce new product but can become tunnel vision as the company grows into more markets/products. WORKING IN ISOLATION: Good for scientist but disastrous for a CEO with multiple constituencies.

International Transfer Pricing.

MNCs use international transfer pricing from one country to another is primarily used not to evaluate performance but to minimize taxes.

Steering Controls

Measures that predict likely profitability.

Job Rotation

Moving people from one job to another- is also used in many large corporations to ensure that employees are gaining the appropriate mix of experiences to prepare them for future responsibilities.

Procedures

Must be developed after the divisional and corporate budgets are approved. They detail various activities that must be carried out to complete a corporation's programs and tactical plans.

Return on Investment (ROI)

Net income before taxes/ the total amount invested in the company

The reasons often cited for the apparent lack of strategic planning practices in many small-business firms are fourfold:

Not enough time. Unfamiliar with strategic planning. Lack of skills. Lack of trust and openness

Process Innovations

Such as improved manufacturing facilities, increasing product quality, and faster distribution become important to maintaining the product's economic returns.

Basic Difference

The basic difference between a small-business firm and an entrepreneurial venture lies not in the type of goods or services provided, but in their fundamental views on growth and innovation.

House of Quality

The house of quality is another method of managing new product development. It is a tool to help project teams make important design decisions by getting them to think about what users want and how to get it to them most effectively. It enhances communication and coordination among engineering, marketing, and manufacturing and ensures better product/customer fit.

Pattern of Influence

The pattern of influence on an organization's strategic decision making derives from its sources of revenue. As shown in Figure C-1 (above), a private university (organization B) is heavily dependent on student tuition and other client-generated funds for about 70% of its revenue. Therefore, the students' desires are likely to have a stronger influence (as shown by an unbroken line) on the university's decision making than are the desires of the various sponsors such as alumni and private foundations. The sponsors' relatively marginal influence on the organization is reflected by a broken line. In contrast, a public university (organization C) is more heavily dependent on outside sponsors such as a state legislature for revenue funding. Student tuition and other client-generated funds form a small percentage (often less than 40%) of total revenue. Therefore, the university's decision making is heavily influenced by the sponsors (unbroken line) and only marginally influenced directly by the students (broken line).

Executive Succession

The process of replacing a key top manager. The average tenure of a chief executive of a large U.S. company declined from nearly 10 years in 2000 to 8.4 years in 2011. Given that two-thirds of all major corporations worldwide replace their CEO at least once in a five-year period, it is important that the firm plan for this eventuality. It is especially important for a company that usually promotes from within to prepare its current managers for promotion. For example, companies using so-called "relay" executive succession, in which a particular candidate is groomed to take over the CEO position, have significantly higher performance than those that hire someone from the outside or hold a competition between internal candidates. These "heirs apparent" are provided special assignments including membership on other firms' boards of directors. Nevertheless, only half of large U.S. companies have CEO succession plans in place. Boards help the CEO create a succession plan, identifying succession candidates below the top layer, measuring internal candidates against outside candidates to ensure the development of a comprehensive set of skills, and providing appropriate financial incentives. Succession planning has become the most important topic discussed by boards of directors. Prosperous firms tend to look outside for CEO candidates only if they have no obvious internal candidates

Reengineering

The radical redesign of business processes to achieve major gains in cost, service or time.

Job Design

The study of individual tasks in an attempt to make them more relevant to the company and to the employees.

Outsourcing Technology May Be Appropriate When:

The technology is of low significance to competitive advantage. The supplier has proprietary technology. The supplier's technology is better and/or cheaper and reasonably easy to integrate into the current system. The company's strategy is based on system design, marketing, distribution, and service— not on development and manufacturing. The technology development process requires special expertise. The technology development process requires new people and new resources.

Time to Market

The time from inception to profitability of a specific R&D program. During 1980s was generally accepted to be 7 to 11 years. However, the time available to complete the cycle is getting shorter. Companies no longer can assume that competitors will allow them the number of years needed to recoup their investment.

Performance Bases vs Traditional Pay Comparative: Traditional Pay

The traditional method anticipates annual raises. In its simplest application the base pay is increased by an annual percentage that may vary with the rate of inflation, seniority, company profitability and, to a lesser degree, individual performance. For purposed of illustration the following example uses an ongoing five percent annual rate. Note that the base pay for each year changes in accordance with the actual salary paid in the previous year.

Strategic Incentive Management

To ensure congruence between the needs of a corporation as a whole and the needs of the employees as individuals, management and the board of directors should develop an incentive program that rewards desired performance. This reduces the likelihood of the agency problems - when employees act to feather their own nests instead of building shareholder value. Incentive plans should be linked in some way to corporate and divisional strategy. Research reveals that firm performance is affected by its compensation policies. Companies using different strategies tend to adopt different pay policies.

Technology Sourcing

Typically a make-or-buy decision, can be important in a firm's R&D strategy. Although in-house R&D has traditionally been an important source of technical knowledge (resulting in valuable patents) for companies, firms can also tap the R&D capabilities of competitors, suppliers, and other organizations through contractual agreements (such as licensing, R&D agreements, and joint ventures) or acquisitions.

Sarbanes-Oxley Act (2002)

US Congress passed the Sarbanes-Oxley Act in June 2002 in response to the many corporate scandals uncovered in 2000. This act was designed to protect shareholders from the excesses and failed oversight that characterized criminal activities at Enron, Tyco etc.

Five Questions of Strategy Implementation

WHO implements strategy? - Responsibility WHAT must be done? - Activity HOW is strategy to be implemented? - Action Steps WHEN strategy should be implemented? - Start Date HOW much should be budgeted on implementation? - Financial Impact

Performance Bases vs Traditional Pay Comparative: Walker's Distinction

Walker makes a distinction between pure merit pay, which becomes a permanent part of individual salaries and lump sum awards which do not. He agrees with Caudron (1993) that profit sharing lacks the immediacy essential to yield an impact on performance and says that incentive awards should apply to specific objectives. Stock ownership promotes identification with company performance, but is not linked to individual contributions to achieving these objectives. In Walker's view merit pay is just one of six forms of Variable pay.

ISO as Implementation Tools

a family of standards with eight management principles, is a way of objectively documenting a company's high-level of quality operations.

Absorptive Capacity

a firm's ability to recognize, assimilate, and utilize new external knowledge. Firms that have absorptive capacity are able to use knowledge obtained externally to increase the productivity of their research expenditures.

Star-Gate Process

a method of managing new product development to increase the likelihood of launching new products quickly and successfully.

Profit Repatriation

is a common way of transferring profits to the parent company through dividends, royalties and management fees.

Management By Objectives (MBO)

is a technique that encourages participative decision making though a shared goal setting at all organizational levels and performance assessment based on the achievement of stated objectives. Links organizational objectives and the behavior of individuals.

ISO 9000 Standards Series

is a way of objectively documenting a company's high level of quality operations. (a family with standards with eight management principles)

Radio Frequency Identification (RFID)

is an electric tagging technology used in a number of companies to improve supply chain efficiency.

Index of R&D Effectiveness

is calculated by dividing the percentage of total revenue spent on R&D into new product profitability, which is expressed as a percentage.

Corporate Entrepreneurship/Intraprenuership

is defined as "the birth of new businesses within existing organizations, that is, internal innovation or venturing; and the transformation of organizations through renewal of the key ideas on which they are built, that is, strategic renewal."

Small Business Firm

is independently owned and operated, is not dominant in its field, and does not engage in innovative practices.

Goal Displacement

is the confusion of means with ends and occurs when activities originally intended to help managers attain corporate objectives becomes ends in themselves.

Tax Inversion

is the practice of relocating a corporation's legal domicile to a lower-tax nation, or tax haven, usually while retaining its material operations in its higher-tax country of origin

Earnings per Share (EPS)

net earnings/ amount issued in common stock

Return on Equity (ROE)

net income/ equity

Shareholder Value

present value of the anticipated future stream of cash flows from the business plus the value of the company if liquidated

Typically, not-for-profit organizations (NFP) include:

private nonprofit corporations (such as hospitals, institutes, private colleges, and organized charities) as well as public governmental units or agencies (such as welfare departments, prisons, and state universities). Traditionally, studies in strategic management have dealt with profit-making firms to the exclusion of nonprofit or governmental organizations. This, however, is changing. Increasing numbers of not-for-profit organizations are adopting strategic management.

Strategic Piggybacking

refers to the development of a new activity for a not-for-profit organization that would generate the funds needed to make up the difference between revenues and expenses

Enterprise Resource Planning (ERP) Software

unites all of a company's major business activates, from order processing to production, within a single family of software modules

Four complications to strategy formulation:

1. Goal conflicts interfere with rational planning Because a not-for-profit organization typically lacks a single clear-cut performance criterion (such as profits), divergent goals and objectives are likely, especially with multiple sponsors. Differences in the concerns of various important sponsors can prevent management from stating the organization's mission in anything but very broad terms, if they fear that a sponsor who disagrees with a particular, narrow definition of mission might cancel its funding. 2. An integrated planning focus tends to shift from results to resources: Because not-for-profit organizations tend to provide services that are hard to measure, they rarely have a net bottom line. Planning, therefore, becomes more concerned with resource inputs, which can easily be measured, than with service, which cannot. Goal displacement becomes even more likely than it is in business organizations. 3. Ambiguous operating objectives create opportunities for internal politics and goal displacement: The combination of vague objectives and a heavy concern with resources allows managers considerable leeway in their activities. Such leeway makes possible political maneuvering for personal ends. In addition, because the effectiveness of a not-for-profit organization hinges on the satisfaction of the sponsoring group, management tends to ignore the needs of the client while focusing on the desires of a powerful sponsor. 4. Professionalization simplifies detailed planning but adds rigidity: In not-for-profit organizations in which professionals play important roles (as in hospitals or colleges), professional values and traditions can prevent the organization from changing its conventional behavior patterns to fit new service missions tuned to changing social needs. This rigidity, of course, can occur in any organization that hires professionals. The strong service orientation of most not-for-profit organizations, however, tends to encourage the development of static professional norms and attitudes.

Internal Scans Questions

1. Has the company developed the resources needed to try new ideas? 2. Do the managers allow experimentation with new products or services? 3. Does the corporation encourage risk-taking and tolerate mistakes? 4. Are people more concerned with new ideas or with defending their turf? 5. Is it easy to form autonomous project teams?

Ten Mistakes to Avoid When Starting a Business

1. Misjudging the Market Just because you think you need something, don't assume the public will want it, need it or be willing to pay for it. Ask as many people as you can for their feedback. An honest reality check at this point can save you a lot of time and grief later on. 2. Not Having a Business Plan A business plan, which you will need, in any case, if you want to obtain outside capital, forces you to think about your goals for the future of your company. The plan must answer the question: "What makes you think you can do this better than present competition?" If at all possible, write it yourself rather than relying on a canned business plan. And keep in mind that it's only a guide. A plan is vital, but it's not written in stone. 3. Miscalculating the Capital Required In almost all start-up situations, whatever you think you'll need won't be enough. Many people believe that once they start the business it will provide for their needs. But with most small businesses, you don't take money out. You're constantly putting money back into it, especially early on. Remember that if your needs exceed your cash or available credit, you'll most likely fail. 4. Underestimating the Time A Business Requires Starting a business and running it, particularly in the early stages, take a huge amount of time and effort. It it's important to you to spend the bulk of your time with family and friends or on hobbies, founding a business is almost certainly not the best thing for you. 5. Not Having the Requisite Skills. If you're going to start or run a small company, you need to know a little bit about everything involved. Even if you have the capital to hire an accountant, a sales manager or a production manager, you'd better know enough about each of their jobs to determine how they're per forming. You can't assume that people know what they're doing or that their interests are the same as yours. 6. Setting Your Price Too Low or Too High. Don't assume you can give away the store as a way of attracting new customers. "What usually happens is that you set expectations in the minds of your customers, and you can never raise your prices to cover your costs. 'Cheap' is a negative word, implying poor quality and it turns people off. On the other hand if the price is too high and people don't perceive value and won't buy. 7. Not Considering Legal Aspects After you determine the steps necessary to start the business, engage competent legal counsel to ensure continuing compliance with laws and regulations, especially those that deal with employment and liability issues. Ask for recommendations from people you know that have employed lawyers for business issues. 8. Choosing the Wrong Partner(s) Before entering into a partnership, ask yourself: "How well do I really know the person I'm considering?" Your partner must be able to carry her or his share of the work and also agree with you on vital business issues. Spend time playing what-if and considering worst-case scenarios. And be sure you have a partnership agreement signed by all parties and a written bail-out plan spelling out details: What happens if a partner wants out? What happens if one of becomes ill or dies? Who gets paid what and how? What's the cost of adequate partnership life insurance? This is an important area where good legal counsel is vital. And if either you or your potential partner(s) are unwilling or unable to take a pragmatic approach to these and other similar questions, a business partnership may not be for you. 9. Not Understanding Employee Issues Do you have a plan for hiring, paying and supervising workers? Have you set up personnel policies or job descriptions? Have you thought about fringe benefits, bonus plans, profit sharing and taxes? You need to be aware that you're assuming total responsibility for the financial well-being of your employees. 10. Wrong Location Moving is expensive, and not just in the obvious ways. Reprinting stationery, getting new phone numbers, rewiring, inconveniencing your employees, updating customers and other contact information--all these things can cost plenty in time and money. You don't want to spend all your initial capital on rent, but when you select your first location, give some thought to future needs. And of course if your business startup is in retail, the aphorism "location, location, location," assumes overriding importance.

The Five Orientation

1. Power Orientation. The appropriateness and acceptance of the power/authority equation within organizations 2. Uncertainty Orientation. An emotional response to uncertainty and change 3. Social Orientation. Relative importance of the interest if the individual versus the interests of the collective 4. Gender Orientation. The relationship between gender and the work roles. The extent to which women and men are treated equally in the workforce. 5. Time Orientation. The extent to which individuals in a given culture adopt a long or term outlook concerning work and life

NPO Ratio

1. Program Ratio Measures the percentage of an organization's total expenses devoted to its direct charitable activities versus administrative and fundraising expenses. 2. Debt Ratio Measures the relationship of total liabilities to total assets of an organization (as opposed to the current ratio for For-Profit companies, which is current assets to current liabilities.) 3. Fundraising Ratio Measures fundraising costs as a percentage of total contributions. Although high fundraising costs are usually considered an indicator of a wasteful organization, this ratio is practically meaningless when used out of context. Furthermore fundraising costs are almost certainly underreported by some organizations. About 70% of public charities, even organizations that receive millions of dollars in contributions, report no fundraising costs. The best way to use this ratio is to watch the organization over time. Despite the negative impression a high ratio usually creates for many NPOs it may frequently be viewed as an investment in the organization's future. 4. Contributions/Grants Ratio Measures the amount of contributions and grants an organization receives as a percentage of total revenue. Contributions and grants are the primary revenue source for more than 40% of charities. 5. Other Income Ratio Measures the percentage of total revenue an organization receives from its investments, membership dues, special events, sales and miscellaneous sources. Overall it is estimated that this source of income provides less than 10% of most organizations' revenue. In recent years there has however been a noticeable increase in this type of revenue as many not-for-profits have undertaken for profit ventures to help them compensate for shrinking government and other grants. 6. Program Service Revenue Ratio Measures the percentage of total revenue an organization receives from charging for the services it provides. Organizations that have found a niche market for their services rely heavily on program, or fee for service, revenue.

Two problems of evaluation and control are often noticed:

1. Rewards and penalties have little or no relationship to performance: When desired results are vague and the judgment of success is subjective, predictable and impersonal feedback cannot be established. Performance is judged either intuitively or on the basis of whatever small aspects of a job can be measured. 2. Inputs rather than outputs are heavily controlled: Because its inputs can be measured much more easily than outputs, a not-for-profit organization tends to focus more on the resources going into performance than on the performance itself. The emphasis is thus on setting maximum limits for costs and expenses. Because there is little to no reward for staying under these limits, people usually respond negatively to such controls.

Five constraints on strategic management:

1. Service is often intangible and hard to measure. 2. Client influence may be weak. 3. Strong employee commitments to professions or to a cause may undermine allegiance to the organization employing them. 4. Resource contributors may intrude on the organization's internal management. Such contributors include fund contributors and government. 5. Restraints on the use of rewards and punishments may result from constraints 1,3, and 4.

The not-for-profit sector of an economy is important for several reasons:

1. Society desires certain goods and services that profit-making firms cannot or will not provide. These are referred to as public or collective goods because people who might not have paid for the goods receive benefits from them. Paved roads, police protection, museums, and schools are examples of public goods. A person cannot use a private good unless he or she pays for it. Generally, once a public good is provided, however, anyone can use or enjoy it. 2. Private NFP organization tends to receive benefits from society that a private profit-making firm cannot obtain. Preferred tax status to nonstock corporations is given in section 501(c)(3) of the U.S. Internal Revenue Service code in the form of exemptions from corporate income taxes. Private nonprofit firms also enjoy exemptions from various other state, local, and federal taxes.

Action Planning (Six Points)

1. Specific actions to be taken to make the program operational 2. Dates to begin and end each action 3. Person (identified by name and title) responsible for carrying out each action 4. Person responsible for monitoring the timeliness and effectiveness of each action 5. Expected financial and physical consequences of each action 6. Contingency plans

Four entrepreneurial characteristics are key to a new venture's success. Successful entrepreneurs have:

1. The ability to identify potential venture opportunities better than most people 2. A sense of urgency that makes them action oriented 3. A detailed knowledge of the keys to success in the industry and the physical stamina to make their work their lives 4. Access to outside help to supplement their skills, knowledge, and abilities.

Bryson's Eight Steps to Strategic Planning

1.) Define Implementation roles and responsibilities of individuals. 2.) Develop specific objectives, expected results, and milestones, including financial indicators where appropriate. 3.) Take specific action steps and include relevant details, insofar as they may be anticipated at the time the plan is created. 4.) Be specific by including schedules, time line and develop a critical path. 5.) Define material, financial and human resource requirements, and their possible sources. 6.) Create a practical and functional communication process. 7.) From the outset include review mechanisms, monitor using effective measurement techniques, and develop midcourse correction procedures. 8.) Finally outline and communicate accountability procedures

Technological Competence

A corporation that purchases an innovative technology must have the technological competence to make good use of it. Some companies that introduce the latest technology into their processes do not adequately assess the competence of their people to handle it.

Why a knowledge of Non-For-Profit Organizations is Important

A knowledge of not-for-profit organizations is important if only because they account for an average of 1 in every 20 jobs in nations throughout the world. Not-for-profits employ over 25% of the U.S. workforce and own approximately 15% of the nation's private wealth. In the United States alone, in addition to various federal, state, and local government agencies, there are about 10,000 not-for-profit hospitals and nursing homes (84% of all hospitals), 4,600 colleges and universities, more than 100,000 private and public elementary and secondary schools, and almost 350,000 churches and synagogues, plus many thousands of charities and service organizations.

Turnaround Specialist

A type of challenge-oriented executive that helps weak companies in a relatively attractive industries to improve/rebuild.

Seven Sources for Innovative Opportunity

Seven sources for innovative opportunity that should be monitored by those interested in starting an entrepreneurial venture, either within an established company or as an independent small business. The first four sources of innovation lie within the industry itself; the last three arise in the societal environment. These seven sources are: 1. The Unexpected 2. The Incongruity 3. Innovation Based on Process Need 4. Changes in Industry or Market Structure 5. Demographics 6. Changes in Perception, Mood, and Meaning 7. New Knowledge.

Downsizing

Sometimes called "right-sizing" or "resizing" refers to the planned elimination of positions or jobs. However, doing so can seriously damage learning capacity, creativity drops significantly (affecting new product development) and it becomes hard to keep high performers from leaving the company.

Behavior Controls

Specify how something is to be done through policies, rules, standard operating procedures, and orders from a superior.

Output Controls

Specify what is to be accomplished by focusing on the end result of behaviors through the use of objectives and performance targets or milestones.

Staffing Follows Strategy

Staffing requirements should follow a change in strategy. Ex. Promotions should be based not only on current job performance but also on whether a person has the skills and abilities to do what is needed to implement the new strategy.

Stages of International Development

Stage 1 (DC): Domestic company exports some of its products through local dealers and distributers in foreign countries. Stage 2 (DC with export division): Leads the company to establish its own sales company with offices in other countries to eliminate middle men Stage 3 (Primarily DC with Int-l division): Establish manufacturing facilities in addition to sales service offices in other countries Stage 4 (Multinational corporation with multi-domestic emphasis): Now a MNC, company increases its investments in other countries Stage 5 (MNC with global emphasis): Have worldwide human resources, R&D, and financing strategies

Action Planning

States what actions are going to be taken, by whom, during what (when) time frame, and with what expected results.

Strategic Alliances

Strategic alliances involve developing cooperative ties with other organizations. Not-for-profit organizations often use alliances as a way to enhance their capacity to serve clients or to acquire resources while still enabling them to keep their identities. Services can be purchased and provided more efficiently through cooperation with other organizations than if they were done alone.

Importance of Small Businesses to Economy

Strategic management as a field of study typically deals with large, established business corporations. However, small business cannot be ignored. There are approximately 23 million small businesses—over 99% of all businesses—in the United States. They generate 60% to 80% of net new jobs annually and produce almost 30% of known export value. Studies found a strong correlation between national economic growth and the level of entrepreneurial activity. Small firms spend almost twice as much of their R&D budget on fundamental research as do large firms, and, small companies are roughly 13 times more innovative per employee than large firms.

Economic Value Added (EVA)

after tax operating income- (investment in assets x weighted average cost of capital).

Entrepreneurial Venture

any business whose primary goals are profitability and growth and that can be characterized by innovative strategic practices.

Product Innovations

are most important in the early stages because the product's physical attributes and capabilities most affect financial performance.

R&D intensity

company's spending on R&D as a percentage of sales revenue R&D Intensity is a principal means of gaining market share in global competition.

ISO 14000 Standards Series

establishes how to document the company's impact on the environment.