Strategic Management Exam 3

partnership

two or more partners share ownership of a firm who are the only beneficiaries of the firm's profits Important to develop trust and confidence in the partner due to the fact that bad decisions would negatively effect the business

strategic business unit structure

* a profit center which focuses on one product or segment *SBU's can be planned separately from the rest of the company *has its own set of competitors and peers * this is where one department spilts into two separate departments and functions soley on their own

Simple Structure

*3-5 employees who share responsibilities under one owner of a firm; used in small organizations *organizational chart is usually not needed *do not rely on formal systems of division of labor

disadvantages of simple structures

*Important tasks may be ignored if no one person is specifically assigned accountability for them *A lack of clear guidance from the top of the organization can create confusion for employees, undermine their motivation, and make them dissatisfied with their jobs.

Holding Company Structures

*ideal for companies that are not closely related *investments from the operating company are moved into the holding company which is free of tax as opposed to pocketing profit from the investing company and being taxed at 50%

limited liability company (LLC)

*not recognized by the federal government as a form of business *mix of corporations and partnerships. *owners are not personally responsible for debts that the LLC accumulates *the LLC can be run in a flexible manner (like in a partnership). *taxed the same as everyone else

The goal of the structure is to accomplish:

*stability through division of labor *flexibility that allows you to take advantage of new opportunities and tackle new threats

Functional Structure

*used when a simple structure is no longer adequate *employees are divided into departments *managers report to multiple other managers *tend to work best for organizations that offer narrow and stable product lines.

celebrity also creates potential costs for individuals such as...

- face larger and more lasting reputation erosion if their job performance and behavior is inconsistent with their celebrity image. -increased personal media scrutiny

board of directors

-A group of individuals, either elected or appointed, who represent the interests of the shareholders -sets CEO's pay -works with the entrepreneur to make the company flow smoothly -advocates of the CEO -provides advice and insights -makes stock and financial decisions *have the power to fire CEO's

mission statement

-states the reasons for an organization's existence. -captures an organization's identity and provide answers to the fundamental question "Who are we?" -captures the key elements of the organization's past and present -explains to key stakeholders why they should support the organization- -clearly lay out important role or purpose the organization plays in society

Advantages

1. establishes coordination between divisions who have common strategic interests 2. establishes accountability for different business units 3. facilitates competition between other SBU's *encourages innovation in product and marketing segments

What four dimensions are reflected on a balanced score card?

1. financial measures 2. customer 3. internal business process 4. learning and growth

Firms can grow by:

1. volume 2. geography 3. through integration 4. through diversification

What are the two main objectives of Corporate governance?

1> Have we done what we said we would do ? 2> did it work?

see graph on page

54 for examples

performance referent

A benchmark such as the industry average that is used to make sense of an organization's standing along a performance measure.

organizational chart

A diagram that depicts how firms' structures are built using two basic building blocks: vertical linkages and horizontal linkages

corporation

A legal form of ownership where shares of ownership are publicly traded in stock markets, and management is performed by professional executives. *disadvantage: double taxation

Organizational control systems

Allows executives to track how well the organization is performing, identify areas of concern, and then take action to address the concerns. 3 types: output control behavioral control clan control. Different organizations emphasize different types of control, but most organizations use a mix of all three types.

triple bottom line

An approach to assessing performance that emphasizes the concerns of people (social responsibility) and the planet (environmental sustainability) in addition to profit

the Five Characteristics of Entrepreneurial Orientation

Autonomy Competitive Aggressiveness Innovativeness Proactiveness Risk Taking

personal benefits and risks of CEO celebrity

CEO Celebs receive higher compensation and job perks than their colleagues. enjoy increased prestige power provide "benefit of the doubt" effect that protects against quick sanctions for downturns in firm performance and stock price

Hidden gems

CEOs who lack fame but possess positive reputations. Their skill as executives is known mainly by those in their own firm and by their competitors

scoundrels

High Fame: Low Reputation

Icons

High Reputation; High Fame combines style and substance in the execution of his or her job responsibilities Mary Kay Ash, Richard Branson, Bill Gates, and Warren Buffett

Types of CEOs

Icons Scoundrels Hidden Gems Silent Killers

stakeholders

Individuals and groups that have an interest to stake a claim in an organization.

Silent killers

Low Reputation; Low fame These CEOs are overlooked and ignored sources of harm to their firms. can be worse than scoundrels

board insiders

Members of the board of directors that are generally employed inside of the organization.

board outsiders

Members of the board of directors that are generally employed outside of the organization.

goals

Narrower aims that organizations pursue to serve their visions and missions the most effective are those at are SMART

institutional investors

Organizations that invest large sums of money into a broad portfolio of holding, such as banks, retirement funds, mutual funds, and pension funds.

within corporate governance, people need to feel

like they can be honest and are free to state their mind

Vertical linkages

Relationships within an organizational structure that show the lines of responsibility through which a supervisor delegates authority to subordinates, oversees their activities, evaluates their performance, and guides them toward improvement when necessary.

SMART

Specfic, Measureable, Agressive, Realastic, Timely

What steps do executives take to choose the structure they will use for their business?

Step 1: figure out the strategy ( will it be cost leadership or differential) Step 2: Figure out the structure

Hierarchy of Authority

The amount of authority increases with each level higher a person or organization is in hierarchy. The ultimate power remains with the person or organization at the very top of the hierarchy, with that position holding the authority to make final decisions in all matters.

unity of command

The principle that each person within an organization should only report directly to one supervisor.

sensitivity-training groups (or T-groups)

This fad involved gatherings of approximately eight to fifteen people openly discussing their emotions, feelings, beliefs, and biases about workplace issues. The anticipated results were more enlightened workers and a greater spirit of teamwork. the T-group fad gave way to recognition that creating potentially hurtful situations has no place within an organization.

strong organizational culture

Values and norms embraced by an organization that determine how people interact with other organizational members as well as external stakeholders. Soon it became clear that organizational culture's importance was being exaggerated.

An organization's vision and mission offer,

a broad, overall sense of the organization's direction

quality circle

a formal group of employees that meets regularly to brainstorm solutions to organizational problems *this prespective was found to be too narrow due to the fact that it left out speed, cost, and flexibility

performance measure

a metric along which organizations can be gauged. includes profits, stock price, and sales

division of labor

a process of splitting up a task into a series of smaller tasks, each of which is performed by a specialist which increases efficiency. Here, each person has their own separate tasks instead of one person doing all of the tasks individually.

Management by objectives (MBO)

a supervisor and employee create a series of goals that provide structure and motivation for the employee. setting challenging but attainable goals leads to good performance *These goals guide employees' behaviors and serve as the benchmarks for assessing their performance.

vision

a vision describes what the organization hopes to become in the future

Assessing organizational performance is

a vital aspect of strategic management

Effective strategic leaders

convince employees to embrace lofty ambitions and move the organization forward.

functional silos -

an issue where departments do not have the freedom to collaborate with other departments in the organization. this is inefficient of time, hinders problem solving, and negatively effects creativity

boundaryless organization

an organization whose design is not determined by a predefined structure, seeks to eliminate the chain of command, and replaces departments with empowered teams, the goal is to break down barriers

proactiveness

anticipating and acting on future opportunities rather than relying solely on existing products and services *A proactive organization is one that adopts an opportunity-seeking perspective. Such organizations act in advance of shifting market demand and are often either the first to enter new markets or "fast followers" that improve on the initial efforts of first movers.

Performance measures help executives

better understand how well their organizations are competing in the market

Decisions made with corporate governance should be

challenged and recorded

Matrix Structure

cross-functional teams who each work on different projects. benefits include: maximizing the organization's flexibility enhancing communication across functional lines creating a spirit of teamwork and collaboration. aids in developing new managers due to the fact that a person without managerial experience can be put in charge of a relatively small project as a test to see whether the person has a talent for leading others.

Using a variety of performance measures and referents is valuable because

different measures and referents provide different information about an organization's functioning.

Advantages

each person tends to learn a great deal about his or her particular function. *individuals have opportunities to advance in their career since they work with other people in their field *creates highly skilled specialists *keep costs low and to create efficiency *conflicts within departments are relatively rares due to relatively

Multidivisional Structure

employees are divided into departments based on product areas and/or geographic regions. *allows a firm to act quickly *aids in better serving customers' needs. * ideal for firms with high diversity that are similar to each other

In an organization that offers high autonomy,

employees are encouraged to speak their minds

disadvantages

empowering divisions to act quickly can backfire if people in those divisions take actions that do not fit with the company's overall strategy. *tend to be more costly to operate than functional structures due to the fact there are units in each division *however, consolidating functions can help decrease the costs

Disadvantages

executing strategic changes can be very slow when compared with other structures

Although these fads tend to be seen as cure-alls initially,

executives eventually realize that an array of sound business practices is needed to create effective organizational controls.

The triple bottom line provides another tool to help executives

focus on performance targets beyond profits alone; this approach stresses the importance of social and environmental outcomes.

Behavioral Control

focuses on controlling the actions that ultimately lead to results. Examples include: enforcing a dress code, having dress down fridays, timed bathroom breaks, requiring customers to sign have two signatures on a check to prevent fraud, and taking attendance as a grade

Dotted line relationships

found in matrix structures, this is where one employee reports to two different managers which violates the unity of command principle

The balanced scorecard recommends that managers

gain an overview of the organization's performance by tracking a small number of key measures that collectively reflect four dimensions.

Disadvantages / Costs of a CEO Celeb

gaps between actual and expected firm performance are magnified. unethical or illegal actions by the celebrity will cause the firm to experience increased media attention compared to firms with other problems

Having a well-formulated vision employees embrace,

gives an organization an edge over its rivals.

The Balanced Scorecard

helps managers resist the temptation to fixate on financial measures and instead monitor a diverse set of important measures

S corporation

here the firm's profits and losses are reported on owners' personal tax returns in proportion with each owner's share of the firm. *would be impractical for most large firms because the number of shareholders in an S corporation is capped, usually at 100.

organizational structure

how tasks are assigned and grouped together with formal reporting relationships. Creating a structure that effectively coordinates a firm's activities increases the firm's likelihood of success.

A goal is aggressive

if achieving it presents a significant challenge to the organization. Performance is strongest when goals are challenging but attainable.

A goal is specific

if it is explicit rather than vague. (While specific goals make it clear how efforts should be directed, vague goals such as "do your best" leave individuals unsure of how to proceed.)

Competitive aggressiveness

intensely and aggressively challenging rivals rather than avoid competition *too much aggressiveness can undermine an organization's success.

risk taking

making bold actions instead of being cautious

Output control

measurable results within an organization. often emphasizes bottom line performance Examples; the number of hits a website receives per day, the number of microwave ovens an assembly line produces per week, and the number of vehicles a car salesman sells per month

Learning and Growth Measures

of performance relate to the future Can we continue to improve and create value?" focus on innovation and proceed with an understanding that strategies change over time example:the number of new skills learned by employees every year.

sole proprietorship

owned by one person all profits are the property of the owner If a sole proprietor is on the losing end of a significant lawsuit, for example, the owner could find his personal assets forfeited.

innovativeness

pursing novel ideas, creative processes, and experimentation *Those organizations that are successful in their innovation efforts tend to enjoy stronger performance than those that do not.

Organizational performance

refers to how well an organization is doing to reach its vision, mission, and goals

Customer Measures

relate to customer attraction, satisfaction, and retention. asks the question, "How do customers see us?" examples: the number of new customers and the percentage of repeat customers.

Financial Measures

relate to organizational effectiveness and profits. examples; return on assets, return on equity, return on investment, profits, stockprice

Internal Business Process Measures

relate to organizational efficiency. These measures help answer the key question "What must we excel at?" Examples include the time it takes to manufacture the organization's good or deliver a service. The time it takes to create a new product and bring it to market is another example of this type of measure.

clan control

relies on shared traditions, expectations, values, and norms to lead people to work toward the good of their organization. used heavily in settings where creativity is vital, such as many hightech businesses. The creativity of a research scientist would be likely to be stifled, for example, if she were given a quota of patents that she must meet each year (output control) or if a strict dress code were enforced (behavioral control).

Although a common belief about entrepreneurs is that they are chronic risk takers,

research suggests that entrepreneurs do not perceive their actions as risky, and most take action only after using planning and forecasting to reduce uncertainty

Advantages of a CEO celebrity

serve as an intangible asset may increase opportunities available to the firm Hiring or developing a celebrity CEO may increase stock price enhance a firm's image improve the morale of employees and other stakeholders

strategy should fit structure

structure follow strategy

Horizontal linkages

the FORMAL relationships between equals in an organization. Often these linkages are called committees, task forces, or teams. Horizontal linkages are important when close coordination is needed across different segments of an organization. ex: committees or task forces

goals must also be realistic

the achievement is feasible

Autonomy

the act of speaking ideas and seeing them through until completion

advantages of simple structures

the flexibility encourages employees' creativity and individualism *

agency problem

the interests of the individuals that manage the company (agents such as the CEO) may not align with the interest of the owners (such as stockholders).

Entrepreneurial orientation (EO)

the processes, practices, and decision-making styles of organizations that act entrepreneurially.

corporate governance

the system by which a company is directed and controlled objective: to make better decisions which enables the company to be better *key to effectiveness of corporate governance is the flow of information * to be held responsible and accountable for the well being of the company

Decisions made with corporate governance should be Simple so that...

the system is accessible and easily understood

Informal linkages

unofficial relationships such as personal friendships, rivalries, and politics. Do not appear in organizational charts, but they nevertheless can have (and often do have) a significant influence on how firms operate.

Divisional Structure

used in organizations that make multiple products

Executives must know how well their organizations are performing to figure out

what strategic changes need to be made

A goal is measurable

whether the goal achieved can be quantified. ex: Either Americans would step on the moon by the end of 1969 or they would not. OR setting a goal to write a page every day.