BUSN 481 Test #1

How is "strategic management" defined in the text, and what are its four key attributes?

Strategic management is defined as the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantage. Strategic management is the study of why firms outperform others. The four key attributes of strategic management are: 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 perspectives 4) Recognizes trade-offs between efficiency and effectiveness

According to Fr. Spitzer, describe some ethical frameworks that would help general managers make more ethical decisions. Explain why ethics is important to effective strategic management.

The Silver Rule: Do no harm. If harm is avoidable, avoid it. If harm is unavoidable, minimize it. The Golden Rule: Do good and optimize the good. Do unto others as you would have others do unto you. Ethics is important to effective strategic management because firms may face enormous costs when ethical crises arise - costs in terms of financial and reputational loss as well as the erosion of human capital and relationships with suppliers, customers, society at large, and governmental agencies. Organizational ethics helps to define what a company is and what it stands for. Positive relationships have been found between ethical performance and strong organizational culture, increased employee efforts, low turnover, higher organizational commitment, and enhanced social responsibility. The advantages of a strong ethical orientation can have a positive effect on employee commitment and motivation to excel.

Discuss and describe the six elements of the external environment (General Model).

The general environment is comprised of factors external to an industry, and usually beyond a firm's control that affect the firm's strategy. 1) Demographic: Genetic and observable characteristics of a population, including the levels of growth of age, density, sex, race, ethnicity, education, geographic region, and income. 2) Sociocultural: The values, beliefs, and lifestyles of a society. 3) Political/Legal: How a society creates and exercises power, including rules, laws, and taxation policies. 4) Technological: Innovation and state of knowledge in industrial arts, engineering, applied sciences, and pure sciences; and their interaction with society. 5) Economic: Characteristics of the economy, including national income and monetary conditions. 6) Global: Influences from foreign countries, including foreign market opportunities, foreign-based competition, and expanded capital markets.

Why is it important for managers to recognize the interdependence in the attraction, development, and retention of talented professionals?

• All steps are based off of another. If attraction is weak, there won't be a significant amount of applications for a job needing filled. If development is poor, there is no point in recruiting because the employees will not fit well with the strategy of the company and will be a waste of human capital. At last, retention is clearly important to get the ball rolling towards developing the right employees to better the company.

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?

• Can improve firm operations, leading to better quality and lower costs due to the communication of difference value-chain activities • All value chain activities working together streamlines a process. • Can focus on the core competencies of the business while depending on good relationships with other key elements of the business • Provide more customer support to create a better company image

Summarize the concept of the balanced scorecard. What are its main advantages?

• Method of evaluating performance using measures of four different perspectives (below) • Four Perspectives o How do customers see us? o What what we excel at? o Can we continue to improve and create value? o How do we look at shareholders? • The main advantages include complementing the financial measures with results of customer views, internal views, and innovation. All of these activities promote better operations that help lead to financial performance. o KEEPS IN MIND ALL STAKEHOLDERS

Briefly describe the primary and support activities in a firm's value chain.

• Primary activities (Sequence: Inbound logistics operations outbound logistics marketing/sales service) o contribute to the physical creation of the product or service o the sale or and transfer to the buyer and o service after the sale • Support Activities (Procurement, Technology development, HRM, general management) o Add value by themselves o Or add value through important relationships with both primary activities and support activities.

What does "hierarchy of goals" mean? What are the main components of it, and why must consistency be achieved among them?

"Hierarchy of goals" are the organizational goals ranging from, at the top, those that are less specific yet able to evoke power and compelling mental images, to at the bottom, those that are more specific and measurable. A hierarchy of strategic goals can help an organization achieve coherence in its strategic direction. Pyramid (Vision, Mission Statement, Strategic Objectives) If everything aligns, there become clear goals in the strategy of firms if they are consistent.

What are the two primary determinants of a firm's long term performance? Explain how these determinants affect profitability.

1. Industry Structure (5 forces listed above) Industry Margins (either higher prices or lower costs, or both)Long term measures (ROI and Triple Bottom Line) 2. Firm's Position (Generic Strategy) Industry Margins (either higher prices or lower costs, or both) Long term measures (ROI and Triple Bottom Line)

Why must managers be aware of a firm's external environments?

A manager must be aware of a firm's external environments because he or she must be able to predict environmental changes and detect changes already under way. In doing so, this alerts the organization to critical trends and events before changes develop a discernible pattern and before competitors recognize them.

Recall an example of a firm that recently faced an ethical crisis. How do you feel the crisis and management's handling of it affected the firm's human capital and social capital?

• Wells Fargo's crisis directly impacted their human and social capital directly. By having 5,300 employees knowingly create fake accounts to meet their sales quotas and earn bonuses, the company will attract less employees to come to their bank, as well as have to spend more to create a better culture for developmental purposes. Their social capital has already taken a huge hit as many relationships have been severed in all aspects of business (as listed above, can expand more)

Discuss the need for managers to use social capital in leveraging their human capital both within and across their firm.

• Social capital- network of relationships and friendships amount talented professionals inside and outside organization. • Human capital does not necessarily need social capital to succeed, however most firms require a lot of group work that needs different personalities to thrive. • Social capital recognizes the need for a mutual respect and friendship to motivate employees and encourage retention in a company. • Social capital acknowledges the need for attracting human capital to an organization as well as create healthy relationships with suppliers, buyers, and other business partners.

Explain why the concept of competitive advantage is central to the study of strategic management.

• Strategic management is all about creating and sustaining competitive advantage. • These advantages have to be developed and maintained to overcome the 5 competitive forces 1.) Threat of new entrants 2.) Bargaining power of buyers 3.) Bargaining power of suppliers 4.) Threat of substitutes 5.) Intensity of rivalry • By overcoming these forces, firms can maintain their competitive advantage and perform well • Can encompass many different answers from other questions

SWOT analysis is a technique to analyze the internal and external environment of a firm. What are its advantages and disadvantages?

• Strengths may not necessarily be competitive advantages, must capitalize on • Too narrow focus on external environment • Does not factor in potential change, only a snapshot of current position • Overemphasizes narrow minded strategy sometimes. May disregard other factors, such as value chain

Briefly describe the four generic strategies - overall cost leadership, differentiation, focus cost leadership, and focus differentiation. Explain why a generic strategy can be used to achieve and sustain a competitive advantage.

1. Overall Cost Leadership- When a company do things for less due to low cost position and an industry target strategically 2. Differentiation-When customers see uniqueness worth the value, they will pay more for a variety of products 3. Focus Cost Leadership- when a particular segment of a business focuses on low costs, this is created. Very rare. 4. Focus Differentiation- based on a particular business segment as well, this means there is a unique product that a consumer will pay more for, usually in the form of something luxurious • Each of these generic strategies are used in different ways, but the main way a firm can achieve and maintain a competitive advantage is to reinvest in the relevant activities that these four strategies create, whether their angle be low-cost or differentiation and in a segmented market or an industry wide market. Essentially, focus on the core competency.

Describe some of the pitfalls associated with each of the four generic strategies.

1. Overall Cost Leadership- too much neglect towards the different value chains, vulnerability to an increase on inputs, imitation, buyers not getting acceptable quality 2. Differentiation- difference begins to not be noticeable by customers, too much differentiation, too high of prices, imitation, and quality perceptions 3. Focus Differentiation- not a lot of customers, fluctuations in demand could ruin product line 4. Focus Cost Leadership- very narrow market, not a lot of mass sales for possibly narrower margins, imitation

What are the three modes of formulating strategy? Explain the advantages and disadvantages of each mode. Which is the preferred mode and why?

1. Planning • Goal is to reduce uncertainty • Systematic/Methodical • Planning framework • Comprehensive • Relevant • See problems in your company • Never assume environment will always be the same (not stable) • Time and money is a disadvantage • The fact that it gets too far away from entrepreneurial is a disadvantage 2. Entrepreneurial • Proactive • Centered on the CEO who has a broader vision • Opportunity focused • Power centralized • Goal is growth • Key benefit is that you can be the first in the game • Can be very risky is a disadvantage 3. Adaptive • Reactive • Problem-solving focus • Power diffused • No clear goals • Disjointed • Companies can get lost and the when employees could get unmotivated, when employees are not motivated the company cannot be a leader in an industry and that is a major disadvantage The best one is...a mix of all three. Every company should be implementing the benefits of all three and minimizing the disadvantages of all three.

Briefly explain the four criteria (Resource Based View) for sustainability of competitive advantages. How does a firm know which resources to develop or acquire?

Firms strengths and capabilities don't always lead to competitive advantages. 1. Valuable- enable a firm to formulate and implement strategies that improve effectiveness and efficiency 2. Rare- If competitors cannot possess the same resource 3. Inimitability- difficult to imitate a resource by constraining competition 4. Difficult to Substitute- not able to substitute with equivalent resources/capabilities A firm knows which resources to develop or acquire based on these four criteria, based on resources being tangible, intangible, and the combination of the two. However these are put together to produce the desired end of a company is how they different resources should be developed or acquired.

Gonzaga president, Thayne McCulloh, is interested in formulating a new strategic plan for the University. What process for formulating the plan would you recommend to him and why?

If Gonzaga president, Thayne McCulloh, were interested in formulating a new strategic plan for the University, I would recommend he use the strategic management process for formulating the plan. The strategic management process: - Precedes effective formulation and implementation of strategies - Involves carful analysis of over arching goals of the organization - Requires a thorough analysis of the organization's external and internal environment

A company focuses solely on short-term profits to provide the greatest return to the owners of the business (i.e., the shareholders in a publicly held firm). What ethical issues could arise?

If a company focuses solely on short-term profits to provide the greatest return to the owners of the business (shareholders in a publicly held firm), multiple ethical issues could arise: - Cut costs by using cheap materials and giving clients a bad product for a quick gain - Not take care of employees and causing people in the organization to suffer in order to cut on costs and turn a larger profit (like at FoxConn)

Describe how the five forces (Industry Analysis) can be used to determine the average expected profitability in an industry.

Porter's five-forces model of industry competition is a tool for examining the industry-level competitive environment, especially the ability of firms in that industry to set prices and minimize costs. The model includes the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in an industry. The five forces can be used to determine the average expected profitability in an industry because each of the five forces affects the firm's ability to compete in a given market. Together, these forces determine the profit potential for a particular industry.

What are some limitations (or caveats) in using five-forces analysis?

Some limitations (or caveats) in using five-forces analysis are: - Managers must not always avoid low profit industries (or low profit segments in profitable industries) because such industries can still yield high returns for some players who pursue sound strategies - The five-forces model assumes a zero-sum game (a situation in which multiple players interact, and winners win only by taking from other players), which can often be an approach that is shortsighted. This can cause people to overlook many possible benefits of developing constructive win-win relationships with suppliers and customers. Having long-term relationships with suppliers can improve a firm's ability to implement just-in-time (JIT) inventory systems which let the company manage inventories better and respond quickly to market demands. - Five-forces analysis can be seen as a static analysis. The key problem with static analysis is that it is simply a picture in time, only reflective of the company at that moment, and only looking at today. By only looking at a static analysis, you forfeit a forward-looking future approach and thus do not see the whole picture.

Explain the concept of "stakeholder management" (Stakeholder Model). Why shouldn't managers be solely interested in stockholder management, that is, maximizing the returns for owners of the firm - its shareholders?

Stakeholder management is defined as a firm's strategy for recognizing and responding to the interests of all its salient stakeholders. A stakeholder can be defined as an individual or group, inside or outside the company, that has a stake in and can influence an organization's performance. Managers shouldn't be solely interested in stockholder management (maximizing the returns for owners of the firm - its shareholders) because other stakeholders outside of shareholders have the ability to make claims on the company and in order to be successful. Five key stakeholders in all organizations: owners, customers, suppliers, employees, and society at large. Managers must also recognize the need to act in a socially responsible manner, which, if done effectively, can enhance a firm's innovativeness. The "shared value" approach represents an innovative perspective on creating value for the firm and society at the same time. The managers should also recognize and incorporate issues related to environmental sustainability in their strategic actions. Unethical Examples: Valeant, Volkswagen, Enron, FoxConn Ethical Examples: Johnson & Johnson • 1970 Tylenol example o On the same day that seven people died in Chicago because of Tylenol, the CEO announced to remove all J&J products on shelves worldwide until safe. Social responsibility, shared value, triple bottom line approach Sustainability triple bottom line approach has to do with optimizing the profitability, the people, and the planet.