Ch 7-12

designing the organization

- a strategic leadership activity of building structures, teams, systems, and organizational processes that facilitate the implementation of the leader's vision and strategies

Board practices of Intel:

-mix of inside and outside directors (majority of independent directors on the board) -Board presentations and access to employees -formal evaluation of officers

contemporary control system

-strategic change proceeds incrementally, one step at a time -leaders "crafting" a strategy -for businesses facing complex and turbulent business environments

Entrepreneurship

the creation of new value by an existing organization or new venture that involves the assumption of risk

relationship between recommended corporate governance practices & firm performance:

- a positive correlation between corporate governance and different measures of corporate performance -compliance with international best practices leads to superior performance (ROA & greater Return on Capital Employed) -Mant recommended corporate governance practices do not have a positive relationship with firm performance.

setting a direction

- a strategic leadership activity of strategy analysis and strategy formulation - integrate stakeholder and environmental knowledge into a vision of what the organization could become

2 key elements of effective leadership

- overcoming barriers to change - effective use of power

board's primary responsibilities:

-ensure that strategic plans undergo rigorous scrutiny -evaluate managers against high performance standards -take control of the succession process most important: be active, critical participants in determining a company's strategies, and provide strong oversight beyond simply approving the CEO's plans.

boundaries and constraints can serve many useful purposes for organizations, including:

-focusing individual efforts on strategic priorities (Jack Welch demand that any business in corporate portfolio be ranked first or second in its industry) -providing short-term objectives and action plans to channel efforts -improving efficiency and effectiveness -minimizing improper and unethical conduct

characteristics of effective reward and evaluation systems

-objectives are clear, well understood, and broadly accepted -rewards are clearly linked to performance and desired behaviors -performance measures are clear and highly visible -feedback is prompt, clear, and unambiguous -the compensation "system" is perceived as fair and equitable -the structure is flexible, it can adapt to changing circumstances.

to be effective, incentive and reward systems need to

-reinforce basic core values; - enhance cohesion and commitment to goals and objectives; and -meet with the organization's overall mission and purpose

short-term objectives and action plans should be:

-specific and measurable -include a specific time horizon for their attainment -be achievable, yet challenging enough to motivate manages who must strive to accomplish them.

traditional control system

-stable and simple environment -goals and objectives can be measured with high level of certainty -little need for complex measures of performance -sales quotas, operating budgets, production schedules are typical

compelling reasons for an increase emphasis on culture and rewards in a system of behavioral controls

-the competitive environment is increasingly complex and unpredictable, demanding both flexibility and quick response to its challenges. -the implicit long-term contract between the organization and its key employees has been eroded.

central to the agency theory is the relationship between:

-the principals, who are the owners of the firm (stockholders) and, -the agents (who are the people paid by principals to perform a job on their behalf (management) -stockholders elect and are represented by a board of directors that has a fiduciary responsibility to ensure that management acts in the best interests of stockholders to ensure long-term financial returns for the firm

agency theory is concerned with resolving two problems that can occur in agency relationships:

first problem= 1. when the goals of the principals and agents conflict, and 2. when it is difficult or expensive for the principal to verify what the agent is actually doing. second problem= the problem of risk sharing, arising when the principal and the agent have different attitudes and preferences towards a risk

Crowdfunding

funding a venture by pooling small investments from a large number of investors; often raised on the internet

Executives who have large holdings of stock in their firms were more likely to

have diversification strategies that were more consistent with shareholder interests- increasing long-term returns.

Entrepreneurial Leadership

leadership appropriate for new ventures that requires courage, belief in one's convictions, and the energy to work hard even in difficult circumstances; and that embodies vision, dedication and drive, and commitment to excellence.

External Governance Control Mechanisms

methods that ensure that managerial actions led to shareholder value maximization and do not harm other stakeholder groups that are outside the control of the corporate governance system. -These include market for corporate control, auditors, governmental regulatory bodies, banks and analysts, media, and public activists.

learning organization

organizations that create a proactive, creative approach to the unknown; characterized by: 1) inspiring and motivating people with a mission and purpose, 2) empowering employees at all skill levels, 3) accumulating and sharing internal knowledge, 4) gathering and integrating external information, and 5) challenging the status quo and enabling creativity

coercive power

power a manager exercises over employees using fear of punishment for errors of omission and commission.

expert power

power from the leader's expertise and knowledge

Emotional Intelligence

self awareness, self regulation, motivation, empathy, social skills

traditional approach to strategic control

sequential method of organizational control in which 1.) strategies are formulated and top management sets goals 2.) strategies are implemented 3.) performance is measured against the predetermined goal set.

market for corporate control

shareholders dissatisfied with a firm's management sell their shares.

organization culture

system of shared values (what is important) and beliefs (how things work) that shape a company's people, organizational structures, and control systems to produce behavioral norms (the way we do things around here).

empathy

the ability to see and consider other people's feelings especially when making decisions

good corporate governance plays an important role in...

the investment decisions of major institutions, and a premium if often reflected in the price of securities in companies that practice it. -the corporate governance premium is larger for firms in countries with sound corporate practices compared to countries with weaker corporate governance standards.

corporate governance

the relationship among various participants in determining the direction and performance of corporations. The primary participants are the shareholders, the management, and the board of directors.

expropriation can be legally done through related transactions,

which can occur when controlling owners sell firm assets to another firm they own at below market prices or spin off the most profitable part of a public firm and merge it with another of their private firms.

Adolf Berle and Gardiner C. Means warned that

widely dispersed ownership released management from the overriding requirement that it serve stock-holders. the separation of ownership from management has given rise to a set of ideas- agency theory

personal time constraints

a barrier to change that stems from people's not having sufficient time for strategic thinking and reflection

vested interest in the status quo

a barrier to change that stems from people's risk aversion

organizational bases of power

a formal management position that is the basis of a leader's power - legitimate - reward - coercive - informational

Organizational Bases of power

a formal position that is the basis of a leader's power

board of directors

a group that has a fiduciary duty to ensure that the company is run consistently with the long-term interests of the owners/shareholders, of a corporation and that acts as an intermediary between the shareholders and management

Power

a leader's ability to get things done in a way he or she wants them to be done

personal bases of power

a leader's personality characteristics and behavior that are the basis of the leader's power - referent - expert

corporation

a mechanism created to allow different parties to contribute capital, expertise, and labor for the maximum benefit of each party. -shareholders (investors) participate in profits without taking direct responsibility for operations -management can run the company without responsibility of personally providing the funds -shareholders have limited liability as well as rather limited involvement in company affairs; they reserve the right to elect directors who have the fiduciary obligation to protect their interests.

informational control defined

a method of organizational control in which a firm gathers and analyzes information from the internal and external environment in order to obtain the best fit between the organization's goals and strategies and the strategic environment -concerned if the organization is "doing the right things"

behavioral control defined

a method of organizational control in which a firm influences the actions of employees through culture, rewards and boundaries. -concerned if the organization is "doing things right"

business groups

a set of firms that, though legally independent, are bound together by a constellation of formal and informal ties and are accustomed to taking coordinated action. -common in emerging economies

referent power

a subordinate's identification with the leader

two central aspects of strategic control

(1) informational control (2) behavioral control

Characteristics of Good Opportunities

- Attractive - Achievable - Durable - Value Creating

Internal Governance Mechanisms

- Board of Directors - Shareholder activism - Managerial Rewards and Incentives

Venture Capitalists

- Companies organized to place their investors' funds in lucrative business opportunities - Used when firms experience rapid growth

Matrix Structure Disadvantages

- Dual reporting relationships lead to uncertainty regarding accountability - Can lead to power struggles & conflict -Relationships are complicated, need teamwork - Decision-making takes longer

Entrepreneurial Resources

- Financial Resources - Human Capital - Social Capital - Government Resources

Vision

- May be an entrepreneur's most important asset - ability to see realities that do not exist yet - able to share with others

Dedication and Drive

- Reflected in hard work - Requires patience, stamina, and a willingness to work long hours

Three interdependent activities of leadership

- Setting a direction - Designing the organization - nurturing a culture dedicated to excellence and ethical behavior

Integrity & Ethical Values

- Shape behaviors - Provide a common frame of reference - Act as a unifying force - Have a positive effect on employee commitment & motivation to excel - Can create value & a competitive advantage

Financial Resource Factors

- Stage of venture development - Scale of venture

Porter's Diamond of National Advantage

- Strategy, Structure and Rivalry - Factor Conditions - Demand Conditions - Related and Supporting Industries

A global start-up

- Uses inputs from around the world - Sells its products & services to customers around the world - Has communication & coordination challenges - Has less resources than well-established corporations - Must use less costly administrative mechanisms - Frequently chooses a boundaryless organizational design

New Venture Group

- a group of individuals, or a division within a corporation, that identifies, evaluates, and cultivates venture opportunities - innovation and experimentation - coordinating with other corporate divisions - identifying potential venture partners - gathering resources launching the venture

International Strategy

- based on diffusion and adaptation of the parent company's knowledge and expertise to foreign markets. -The primary goal of the strategy is worldwide exploitation of the parent firm's knowledge and capabilities. - Country Units may make minor adaptations

Entry Modes of International Expansion Wholly owned subsidary

- business in which multinational company owns 100 percent of stock - green-field operations - acquisition

Entry Modes of International Expansion Licensing:

- company receives a fee in exchange for the right to use its intellectual property - low development cost & risk - lack of control over technology - inability to realize location and experience curve

Global Strategy implies a firm is interested in lowering costs:

- competitive strategy is centralized & controlled by the corporate office - products are standardized, operations centralized, producing economies of scale - worldwide volume supports R&D - there's a standard level of quality worldwide - pressure for reducing cost is high; pressure for adaptation to local markets is weak

Green field operations

- complete equity and operational control - protection of know-how - high development costs and slow entry speed

Holding Structure Advantages

- cost savings due to fewer personnel and lower overhead - divisional autonomy increases motivation level of divisional executives - quicker response to changes in the market environment

Management Risks

- culture - customs - language - income levels - customer preferences - distributions system

Product innovation

- efforts to create product designs - applications of technology to develop new products for end users - more common during early stages of an industry's life cycle - associated with differentiation strategies

Functional Structure Advantage

- enhance coordination & control - centralized decision making - enhanced organizational-level perspective -more efficient use of managerial & technical talent - Facilitated career paths in specialized areas

Incremental Innovation

- enhance existing practices - small improvements in products and processes - evolutionary applications within existing paradigms

Traditional control system is appropriate when:

- environment is stable and relatively simple - goals and objectives can be measured with certainty - little need for complex measures of performance

Real Options Analysis has another llimitation: Managers' irrational escalation of commitment occurs when:

- exercise decision retains some uncertainty - an option to exit requires reversing an initial decision - managers are invested in their original decision - they feel they will lose face by reversing course - they will try to make the existing decision work - they will continue an existing project even if it should be ended

Radical Innovations

- fundamental changes and breakthroughs - evoke major departures from existing practices - can be highly disruptive - can transform a revolutionize a whole industry

Emotional Intelligence Effective Leaders should:

- have empathy for others - be astute judges of people - be passionate, persistent about pursuing objectives - create personal connections with people, take time to engage employees individually & in groups - be altruistic, focused on the firm's general welfare, highly principled

Emotional Intelligence Effective Leaders should:

- have empathy for others - be astute judges of people - be passionate, persistent about pursuing objectives - create personal connections with people, take time to engage employees individually & in groups - be altruistic, focused on the firm's general welfare, highly principled

Offshoring: - Hidden costs:

- higher total wage & indirect costs, wage inflation - increased inventory due to longer lead time - reduced market responsiveness - increased coordination costs - cost of protecting intellectual property

International Strategies: Opposing Pressures Cost Reduction or adaption to local markets: Three Assumptions

- homogenous customer needs & interests - people prefer lower prices at high quality - global markets produce economies of scale

Creating a Responsive Budget Process

- in budget negotiations, top managers ask for more ambitious goals while lower level managers shoot for targets they know they can hit

Innovation Challenges/dilemmas Incremental vs. Preemptive launch

- incremental launch is less risky, requires fewer resources, serves as a market test - incremental launch can undermine the project's credibility if ti is too tentative - incremental launch can open the door for a competitive response - large scale launch requires more resources - large scale launch effectively preempt a competitive response

Leaders must make effective use of power to:

- influence other people's behavior - persuade them to do things they otherwise would not do - overcome resistance and opposition

Commitment to Excellence

- knowing the customer - providing quality goods and services - paying attention to details - continuously learning - Surround yourself with people smarter than you

Factors Endowments involve factors of production:

- land - capital - labor

Offshoring - common savings:

- lower wages - benefits - energy costs - regulatory costs - taxes

Agency theory and the back solver dilemma

- managers have an incentive to propose projects that might be successful so managers may "game the system" by back-solving any formula

Demanding consumers drive firms in that country to:

- meet high standards - upgrade existing products & services - create innovative products and services - better anticipate future global demand - proactively respond to product & service requirements

Contemporary Approach: Informational Control:

- method of organizational control in which firm gathers & analyzes info from internal/external environment in order to obtain best fit between organization's goals and strategies and the strategic environment - primarily concerned with whether or not org is "doing the right things"

Simple Organizational Structure

- organization is small, with single or very narrow product line - owner-manager makes most of the decisions - staff serves as extension to top executive

Emotional Intelligence Effective Leaders Should Not

- over-identify, confuse empathy with sympathy - become overly critical - allow passion to close their minds to other possibilities - make too many announced visits creating a culture of fear & micromanagement - be manipulative, selfish, dishonest, use leadership solely to gain power

Emotional Intelligence Effective Leaders Should Not

- over-identify, confuse empathy with sympathy - become overly critical - allow passion to close their minds to other possibilities - make too many announced visits creating a culture of fear & micromanagement - be manipulative, selfish, dishonest, use leadership soley to gain power

Disruptive innovations

- overturn markets by providing an altogether new approach to meeting customer needs - be technologically simpler - appeal to less demanding customers - become disruptive only after they ahve taken root in a new part of the market

Strategic Business Unit Advantages

- planning & control by corporate office -decentralization of authority - quicker response to changes in the market environment - synergies through sharing core competencies, infrastructures & market power

Strategic Business Unit Disadvantages

- possible difficulty in achieving synergies - increased personnel & overhead expenses - corporate office further removed from the divisions - corporate unaware of key changes in market conditions

Holding Structure Disadvantages

- potential for synergies is very limited - corporate office has little control - difficult to replace key divisional executives if they leave - turnaround may be difficult due to limited corporate staff support

Entry Modes of International Expansion Exporting:

- producing goods in one country to sell residents of another country - low admisntrative cost, accumulation of experience - high transportation cost, marketing disadvantage

International Strategies: Opposing Pressures Cost Reduction or adaption to local markets: Assumptions may be incorrect

- product markets DO vary widely between nations - local adaptations work - there is growing interest in multiple product features, product quality, & service - technology permits flexible production; cost of production may not be critical to product cost; and a firm's strategy should not be soley product driven

Organizational ethics

- promote an operating culture and determine acceptable behavior - Ethical beliefs come from the values, attitudes, & behavioral patterns of leadership (Unethical business practices involve the tacit, if not explicit, cooperation of others)

Organizational ethics

- promote an operating culture and determine acceptable behavior - Ethical beliefs come from the values, attitudes, & behavioral patterns of leadership (Unethical business practices involve the tacit, if not explicit, cooperation of others)

Contemporary Approach: Two Key Issues

- scan and monitor external environment (general & industry) - continuously monitor internal environment

5 components of EI

- self-awareness - self-regulation - motivation - empathy - social skills

Corporate Governance: Separation of owners (shareholders) & mgt in modern corporation means:

- shareholders (investors) have limited liability and can participate in profits without taking direct responsibility for operations - mgt can run company without personally providing any funds - board of directors are elected by shareholders & have fiduciary obligation to protect shareholder interests

International Strategies: Opposing Pressures Cost Reduction or adaption to local markets: Strategies that favor global products & brands should do the following:

- standardize all products for all markets - reduce overall costs by spreading investments over a larger market

Firm strategy, structure, and rivalry due to:

- strong consumer demand - strong supplier base - high new entrant potential from related industries - domestic rivalry leads to search for new markets - rivalry is a strong indicator of global competitive success

Rewards and Incentive systems downside

- subculture may arise in different business units with multiple reward systems - may reflect differences among functional areas, products, services, and divisions

Opportunity Recognition

- the process of discovering and evaluating changes in the business environment, such as a new technology, sociocultural trends, or shifts in consumer demand, that can be exploited - Discovery and Evaluation Phases

Entry Modes of International Expansion Strategic Alliances & Joint Ventures

- type of partnership that may either be non-equity or equity based - sharing costs, risks, and profits - access to partners knowledge and asset - politically acceptable - divergent goals and interests - trust - management issues

Firms w/ international operations must consider a structure based on the following

- type of strategy driving the firm's foreign operations - degree of product diversity - the extent to which a firm is dependent on foreign sales

Divisional Structure Disadvantages

- very expensive duplication of functions possible - dysfunctional competition among divisions - differences in image & quality possible across divisions - too much focus on short term performance

An effective Board of Directors should

-Become active, critical participants -Ensure that strategic plans undergo rigorous scrutiny -Evaluate managers against high performance standards -Take control of the succession process -Practice director independence -No interlocking directorships -Insist that directors own significant stock in the company

Simple Structure: Advantages

-Highly informal -Coordination of tasks by direct supervision -Centralized decision-making -Little specialization -Few rules & regulations; informal reward systems

Functional Structure Disadvantages

-Impeded communication & coordination due differences in values & orientations - "silos" -May lead to short-term thinking -Difficult to establish uniform performance standards

Matrix Structure Advantages

-Increases market responsiveness, collaboration & synergies -Allows more efficient utilization of resources -Improves flexibility, coordination & communication -Increases professional development

Rewards and Incentive Systems

-Powerful means of influencing an organization's culture -Focuses efforts on high-priority tasks -Motivates individual and collective task performance -Can be an effective motivator and control mechanism

Divisional Structure Advantages

-Separation of strategic and operating control -Quick response to important changes in external environment -Minimal problems of sharing resources across functional departments -Development of general management talent is enhanced

Integrity & Ethical Values

-Shape behaviors -Provide a common frame of reference -Act as a unifying force -Have a positive effect on employee commitment & motivation to excel -Can create value & a competitive advantage

Setting a Direction: Required Capacities

-Solve increasingly complex problems -Be proactive in approach -Develop viable strategic options

TIAA-CREF (largest pension system in the world) set forth following guidelines for stock-based compensation:

-allow for creation of executive wealth that is reasonable in view of creation of shareholder wealth. management should not prosper through stock while share-holder suffer. -have measurable and predictable outcomes that are directly linked to the company's performance -be market oriented, within levels of comparability for similar positions in companies of smaller size and business focus. -be straightforward and clearly described so that investors and employees can understand them. -be fully disclosed to the investing public and be approved by shareholders.

2002 Sarbanes-Oxley Act

-created to protect shareholders by restricting the power of corporate executives and empowering directors and making them more accountable. -after, many directors work harder -20 to 30 percent annual increase in director compensation, reflecting the realities of new responsibilities and increased demand for directors who met independence rules.

Process innovations

-improving efficiency of an organizational process -manufacturing systems and operations -more likely to occur in later stages of an industry's life cycle -associated with cost leader strategies

acquisitions

-quick to execute - post-acquistion integration problems

Generic Strategies for New Ventures include:

1) Overall Cost Leadership 2) Differentiation 3) Focus

TWO Types of Competitive Actions:

1) STRATEGIC ACTIONS include: - Entering new markets - Creating new product introductions - Changing production capacity - Pursuing mergers/alliances 2) TACTICAL ACTIONS include: - Doing price cutting (or offering increases) - Making product/service enhancements - Increasing marketing efforts - Developing new distribution channels.

Factors Affecting a Nation's Competitiveness

1. Factor endowments 2. Demand conditions 3. Related and supporting industries 4. Firm strategy, structure, and rivalry

Contemporary Approach: TO ensure effectiveness:

1. Focus on constantly changing info that has potential strategic importance 2. The info is important enough to demand frequent and regular attention from all levels of the organization. 3. The data and information generated are best interpreted and discussed in face-to-face meetings 4. The control system is a key catalyst for an ongoing debate about underlying data, assumptions and action plans

Evolving from Boundaries to Rewards & Culture

1. Hire the right people 2. Training plays a key role 3. Managerial role models are vital 4. Reward systems must be clearly aligned with the organizational goals & objectives

Strategic Control Central Aspects:

1. Informational Control 2. Behavioral Control 3. Corporate Governance

Traditional Approach to Strategic Control: Traditional Control System

1. Strategies are formulated & top management set goals 2. Strategies are implemented 3. Performance is measured against the predetermined goal

managerial rewards and incentives

1. boards can require that the CEOs become substantial owners of company stock. 2. salaries, bonuses, and stock options can be structured so as to provide rewards for superior performance and penalties for poor performance 3. threat of dismissal for poor performance can be a realistic outcome.

Entry Modes of International Expansion

1. exporting 2. licensing 3. franchising 4. strategic alliance 5. joint venture 6. wholly owned subsidiary

evolving from boundaries to rewards and culture

1. hire the right people 2. training plays a key role. (FedEx) 3. managerial roles are vital (Andy Grove CEO of Intel, encourage openness by not having many of the trappings of success) 4. reward systems must be clearly aligned with organizational goals and objectives (Home Depot with generous bonus and stock option- rules and regulations are not as important)

Agency theory addresses 2 problems

1. the conflicting goals of principals and agents along with difficulty of principals to monitor agents 2. the different attitudes and preferences toward risk of principals and agents

Market Dependence

A degree of concentration of a firm's business in a particular industry.

Threat Analysis

A firm's awareness of its closest competitors and the kinds of competitive actions they might be planning

Threat Analysis

A firm's awareness of its closest competitors and the kinds of competitive actions they might be planning. Threat analysis involves an assessment of: Market commonality Resource similarity And, also, to ask.....How serious is the threat?

Forbearance

A firm's choice of not reacting to a rival's new competitive action.

Adaptive New Entry

A firm's entry into an industry by offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends

Adaptive New Entry

A firm's entry into an industry by offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends. An adaptive new entry involves taking an existing idea and adapting it to a particular situation. However, unless potential customers believe the product or service does a superior job of meeting their needs, they will have little motivation to try it. Second, there is nothing to prevent a close competitor from mimicking the new firm's adaptation as a way to hold onto its customers. Third, once an adaptive entrant achieves initial success, the challenge is to keep the idea fresh. If the attractive features of the new business are copied, the entrepreneurial firm must find ways to adapt and improve the product or service offering.

Pioneering New Entry

A firm's entry into an industry with a radical new product or highly innovative service that changes the way business is conducted. If the product or service is unique enough, a pioneering new entrant might actually have little direct competition. However, there is a strong risk that the product or service will not be accepted by consumers. A pioneering new entry is also potentially disruptive to the status quo of an industry. If it is successful, other competitors will rush into copy it. This can create issues of sustainability for entrepreneurial firms. For a new entrant to sustain its pioneering advantage, it may be necessary to protect its intellectual property, advertise heavily to build brand recognition, form alliances with businesses that will adopt its products or services, and offer exceptional customer service.

Imitative New Entry

A firm's entry into an industry with products or services that capitalize on proven market successes and that usually has a strong marketing orientation. An imitative new entry strategy is used by entrepreneurs who see products or business concepts that have been successful in one market niche or physical locale and introduce the same basic product or service in another segment of the market. Sometimes the key to success with an imitative strategy is to fill a market space where the need had previously been filled inadequately. Entrepreneurs are also prompted to be imitators when they realize that they have the resources or skills to do a job better than an existing competitor. But success triggers imitation.

Co-opetition

A firm's strategy of both cooperating and competing with rival firms.

Angel Investors

A private individuals who provide equity investments for seed capital during the early stages of a new venture. These outside investors favor companies that already have a winning business model and dominance in a market niche. Once a venture has established itself as a going concern, other sources of financing become readily available, such as commercial loans taken out by the business.

Entrepreneurial Strategy

A strategy that enables the skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture. To be successful, new ventures must evaluate industry conditions, the competitive environment, and market opportunities in order to position themselves strategically. However, a traditional strategic analysis may have to be altered somewhat to fit the entrepreneurial situation. For instance, a five-forces analysis can be applied to the analysis of new ventures to assess the impact of industry and competitive forces. First, the new entry needs to examine barriers to entry. A second important factor is the threat of retaliation by market incumbents. Part of any decision about what opportunity to pursue is a consideration of how a new entry will actually enter a new market, and, once it's there, how it will compete. NEW technologies, shifting social and demographic trends, and sudden changes in the business environment can create opportunities for entrepreneurship. However, business opportunities can disappear as quickly as they appear. Whether the firm is an entrepreneurial startup, a small business, or an existing business entering a market or industry for the first time, it must rely on sound strategic principles to be successful. ENTREPRENEURIAL ACTIVITY influences a firm's strategic priorities and intensifies the rivalry among an industry's close competitors. Even with a strong initial resource base, entrepreneurs are unlikely to succeed if their business ideas are easily imitated or the execution of the strategy falls short. Not only is it important for a firm to recognize an entrepreneurial opportunity, a firm must understand the COMPETITIVE DYNAMICS that are at work in the business environment in order to succeed with a growth opportunity. It's important to have an effective competitive strategy.

Behavioral Control: Culture

A system of unwritten rules that forms an internalized influence over behavior - often found in professional orgs - associated with high autonomy - norms are basis for behavior

Why is vision such an important element of entrepreneurial leadership?

A) Because the entrepreneur has to envision realities that do not yet exist B) Because a vision statement must be part of the documentation used to obtain venture financing C) Because organizations cannot function without a detailed and operational vision D) All of the above ANSWER: A

Which of the following might best describe the motivations and actions of small firms as they respond to competitive attacks?

A) Because they lack legitimacy in the marketplace, small firms need to signal their competitive actions long before they launch those actions. B) Small firms typically have more resources available as they undertake competitive attacks. C) Small firms are more nimble and can respond quickly to competitive attacks. D)All of the above. ANSWER: C Smaller size makes them more nimble compared to large firms so they can respond quickly to competitive attacks. Because they are not well known, startups also have the advantage of the element of surprise in how and when they attack. Innovative uses of technology, for example, allow small firms to deploy resources in unique ways. Because they are young, however, startups may not have the financial resources needed to follow through with a competitive response. In contrast, older and larger firms may have more resources and a repertoire of competitive techniques they can use in a counterattack. Large firms, however, tend to be slower to respond.

When an industry is mature, a _________ strategy may be considered to be an effective approach for a new entrant.

A) Focus B) Differentiation C) Overall Low-Cost D) Small Business ANSWER: A **If a start-up wants to succeed, it has to take business away from an existing competitor. Young firms can often succeed best by finding a market niche where they can get a foothold and make small advances that erode the position of the existing competitors. From this position, they can build a name for themselves and grow.

Three ingredients are critical in order for an entrepreneurial startup to be successful. What are they?

A) Good ideas, a team of investors, and a business plan. B) A viable opportunity, available resources, and a qualified and motivated founding team. C) An opportunity, a marketing plan, and office space. D) Management, marketing, and money. ANSWER: B

All of the following are components of emotional intelligence (EI) except

A. Empathy B. Self- regulation C. Self-Promotion D. Self- Awareness

What are the common drivers of venture failure?

According to David Drews: - Failure to plan based on analysis of market demand; spending too much time planning - Not having enough top talent who can wear multiple hats; having too many employees you can't afford - Coming up short on revenue; neglecting to figure out "burn rate" of capital or break-even point

How does one identify profitable opportunities?

According to David Drews: - Listen to the customers, anticipate their needs - Understand the competitive landscape; adopt new offerings before they're widely available in the market - Hire world-class talent with diverse backgrounds who can use new thinking to broaden product offerings.

How should growth be funded?

According to David Drews: Don't give away equity - use past earnings & debt to finance growth - protect the employee-owners.

How important are social networks & relationships to creating a competitive advantage?

According to David Drews: Social networks provide excellent background information, BUT nothing replaces a strong personal relationship. - Trust must be earned by solving real business problems for clients: addressing current & anticipating future needs - Find & develop trusted alliances with suppliers & technology partners - Take the time to build truly trusted relationships across the entire spectrum of clients, suppliers, employees & other business contacts

How to succeed?

According to David Drews: To be successful, you should know your business model and key success factors, and lead, inspire, & recruit outstanding people.

New Competitive Action

Are acts that might provoke competitors to react, such as new market entry, price-cutting, imitating successful products, and expanding production capacity. Why do companies launch new competitive actions? - To improve market position - To capitalize on growing demand - To expand production capacity - To provide an innovative new solution - To obtain first mover advantages - To strengthen financial outcomes & capture profits - To grow the business The likelihood that a competitor will launch an attack depends on many factors. Some of these factors include competitor analysis, market conditions, types of strategic actions available, and the resource endowments and capabilities companies need in order to take this competitive action.

Venture Capitalists

Are companies organized to place their investors' funds in lucrative business opportunities. Through venture capitalists, entrepreneurs can raise money by selling shares in the new venture. Businesses with extensive development costs or firms on the brink of rapid growth are likely to turn to venture capitalists.

Sarbanex Oxley Act

Auditors - barred from certain types of non audit work - not allowed to destroy records for 5 years - lead partners auditing a firm should be changed at least every 5 years CEO / CFOs - must fully reveal off balance sheet finances - vouch for accuracy of info revealed Executives - must promptly reveal sale of shares in firms they manage - are not allowed to sell shares when other employees cannot

Which of the following statements about leadership is false? A. Effective implementation of strategy is essential for successful leadership B. Leaders support the status quo and seek control mechanisms to maintain it C. Leadership is focused on the creation and implementation of a creative vision D. Leadership is the process of transforming organizations from what they are to what the leader would have them become

B. Leaders support the status quo and seek control mechanisms to maintain it

In the integrity-based approach to management, ethics is the responsibility of the A. Shareholders B. Management C. Employees D. Outside Stakeholders

B. Management

In order to minimize the temptation for managers to act in their own self-interest governance mechanisms exist for implementation consideration. Which of the following is not a primary means for monitoring managerial behavior? A. shareholder activism in which owners view themselves shareowners B. board of directors that acts in best interests of shareholders to create short-term value C. board of directors that acts in best interests of shareholders to create long-term value D. managerial incentives to align mgt interests with those of stockholders

B. board of directors that acts in best interests of shareholders to create short-term valu

Boards are responsible for managerial rewards and incentives

Boards can require that CEOs become substantial owners of company stock salaries, bonuses and stock options can be structured so as to provide rewards for superior performance & penalties for poor performance dismissal for poor performance should be a realistic threat

Typically, a new entrant begins with a single business model that is equivalent in scope to a __________________________ strategy.

Business-level

Which of the following is not a characteristic of a successful learning organization? A. It creates a proactive, creative approach to the unknown B. It actively solicits the involvement of employees at all levels C. It regularly engages in activities to reinforce the status quo D. It enables everyone to use their intelligence and apply their imagination

C. It regularly engages in activities to reinforce the status quo

Most successful organizations minimize the need for explicit rules, regulations, and other boundaries by A. Posting written statements of the organizational goals and objectives B. Discouraging the formation of subcultures that isolate work groups C. Providing a system of rewards and incentives, coupled with a strong enough culture D. encouraging employees to see themselves as free agents

C. Providing a system of rewards and incentives, coupled with a strong enough culture

Agency theory is concerned with resolving two problems that can occur in agency relationships. Which of the following is not one of those problems? A. Principals and agents have differing attitudes toward risk B. Stockholders & mgt align with external stakeholders C. Verification of actual agency activity is expensive and difficult to obain D. Goals conflict between principals and agents

C. Verification of actual agency activity is expensive and difficult to obain

Real options analysis is most appropriate when A. the total investment required is small, but the environment is uncertain B. the investment required could be justified by DCF techniques C. small investment upfront can be followed by series of subsequent investments D. there is no prospect of obtaining additional information before making subsequent investments

C. small investment upfront can be followed by series of subsequent investments

CEO as Board Members: Advantages

CEO has higher credibility and authority with board and community Adv w/ voting rights: CEO and board work in partnership with an equal voice and influence Board can better recruit strong CEO candidates

CEO as Board Members: LImitations

CEO roles as staff and board member blur may create conflict of interest has too much influence on board decisions potential for board to rely too heavily on CEO's opinion Board may not adequately supervise/evaluate one of its own

CEO as staff only: Limitations:

Ceo may have less authority or influence CEO may not have same credibility or authority with board and community boards might not recruit same caliber of CEO candidates

"Hardball" Strategies

Competition among incumbent rivals can involve "hardball" strategies: 1) Devastating rivals' profit sanctuaries 2) Plagiarizing with pride 3) Deceiving the competition 4) Unleashing massive & overwhelming force 5) Raising competitors' costs

Awareness of the threats posed by industry rivals allows a firm to understand what type of _______________response, if any, may be necessary.

Competitive

Competitive Dynamics

Competitive Dynamics concerns intense rivalry, involving actions and responses among similar competitors vying for the same customers in a marketplace. New entry into markets, whether by startups or by incumbent firms, nearly always threatens existing competitors. As a result, the competitive actions of the new entrants are very likely to provoke negative response from companies that feel threatened. COMPETITIVE DYNAMICS helps explain why competitive strategies evolve and how to respond: - Need to identify NEW COMPETITIVE ACTION. - Engage in THREAT ANALYSIS. - Have the motivation and capability to respond - Understand the types of competitive action - Evaluate the likelihood of competitive reaction

Related and supporting industries enable firms to manage inputs more effectively:

Competitive supplier base - reduces manufacturing costs Close working relationships with suppliers - allows for joint research & development Development of related industries - forces existing firms to practice cost control, product innovation, better distribution methods

Approaches to Ethics Management: Methods

Compliance Based Approach - education, reduced discretion, auditing and controls, penalties Integrity Based Approach - Education, leadership, accountablity, organizational systems and decision processes, auditing and controls, penalties

Approaches to Ethics Management: Leadership

Compliance Based Approach - lawyer driven Integrity Based Approach - Mangement driven with aid of lawyers, HR, and other

Approaches to Ethics Management: Ethos

Compliance Based Approach: - Conformity with externally imposed standards Integrity Based Approach: - self-governance according to chosen standards

Approaches to Ethics Management: Ethos

Compliance Based Approach: - Conformity with externally imposed standards Integrity Based Approach: - self-governance according to chosen standards

Approaches to Ethics Management: Behavioral Assumptions

Compliance Based Approach: - autonomous beings guided by material self-interest Integrity Based Approach: - social beings guided by material self-interest, values, ideals, peers

Approaches to Ethics Management: Methods

Compliance Based Approach: - education, reduced discretion, auditing and controls, penalties Integrity Based Approach: - Education, leadership, accountability, organizational systems and decision processes, auditing and controls, penalties

Approaches to Ethics Management: Leadership

Compliance Based Approach: - lawyer driven Integrity Based Approach - management driven with aid of lawyers, HR, and others

Approaches to Ethics Management: Objective

Compliance Based Approach: - prevent criminal misconduct Integrity Based Approach: - enable responsible conduct

Approaches to Ethics Management: Behavioral Assumptions

Compliance Based Approach: - autonomous beings guided by material self-interest Integrity Based Approach - Social beings guided by material self-interest, values, ideals, peers

Approaches to Ethics Management: Objective

Compliance based approach: - prevent criminal misconduct Integrity Based Approach - Enable responsible conduct

Opportunity Analysis Framework

Consists of THREE Factors: 1) Resources 2) Opportunity 3) Entrepreneur(s) For an entrepreneurial venture to create new value, THREE FACTORS must be present - an entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or entrepreneurial team willing and able to undertake the opportunity. The entrepreneurial strategy that an organization uses will depend on these three factors. Thus, beyond merely identifying a venture concept, the opportunity recognition process also involves organizing the key people and resources that are needed to go forward.

Effective culture must be

Cultivated Encouraged Fertilized

Multinational Firms can encounter other risks:

Currency risk due to fluctuations in the local currency's exchange rate - affects cost of production or net profit Management risk due to culture, customs, language, income level, customer preferences, distribution systems - could lead to the need for local adaption of apparently standard products

In choosing sides concerning CEO duality, two schools of thought exist. Which of the following would not be a consideration for the Unity of Command School of thought? A. One person holding both roles will be able to act more efficiently and effectively. B. CEO duality provides smoother strategic decision making. C. CEO duality creates unity across the board of directors and managers of a company. D. CEO duality slows down decision-making.

D. CEO duality slows down decision-making.

Alan Mulally took over Ford Motor Company in 2006 at a time when it was struggling, losing money and market share. Under his leadership, the firm returned to high profitability. Which of the following is not one of the interdependent activities of leadership that he used to accomplish his task? A. He designed the organization to facilitate the implementation of his vision and strategies B. He nurtured a culture focused on core competencies and high ethical standards C. He set a direction using strategic analysis and strategy formulation D. He nurtured a culture dedicated to profits at any cost

D. He nurtured a culture dedicated to profits at any cost

Agency theory suggests that as managerial and _____ interests ______, managers will follow the path of their self-interest A. Stakeholder; increase B. shareholder; expand C. employee; coordinate D. owner; diverge

D. owner; diverge

Both pioneering and adaptive entry strategies involve some degree of ______________________ .

Differentiation

Contemporary Approach: Key Question

Do organization's goals and strategies still "fit" within context of current strategic environment?

Innovation Strategies

Double down Continued Exploring Adjust the Game plan Shelve

Drive & Dedication

Drive and dedication are reflected in hard work. DRIVE involves internal motivation; DEDICATION calls for intellectual commitment that keeps an entrepreneur going even in the face of bad news or poor luck. They BOTH require patience, stamina, and a willingness to work long hours. **The dedicated entrepreneur's enthusiasm is also important - it attracts others to the business to help with the work.

Entrepreneurial Opportunities

Entrepreneurial opportunities require OPPORTUNITY RECOGNITION. TWO PHASES of activity: 1) DISCOVERY: Becoming aware of a new business concept. 2) EVALUATION: Analyzing the opportunity to determine whether it is viable or feasible to develop further.

Commitment to Excellence

Excellence requires entrepreneurs to commit to knowing the customer, providing quality goods and services, paying attention to details, and continuously learning. Entrepreneurs who achieve excellence are sensitive to how these factors work together. The most successful entrepreneurs often report that they owed their success to hiring people smarter than themselves.

New ventures founded by entrepreneurs who have __________________social contacts are also more likely to succeed.

Extensive

Financial Resources

Financial resources depend on stage of venture development & venture scale: Initial, start up financing can take the form of: - Personal savings, family, and friends - CROWDFUNDING Early stage financing can take the form of: - Bank financing, ANGEL INVESTORS. Later stage financing Commercial banks, VENTURE CAPITALISTS equity financing. Cash finances are, of course, highly important, but access to capital, such as a line of credit or favorable payment terms with the supplier, can also help a new venture succeed. The types of financial resources that may be needed depend on TWO factors: the stage of venture development and the scale of the venture.

In the United States, the federal, state, and local government provides support for entrepreneurial firms in two key areas - ________________ and government contracting.

Financing

The level of available _______________ is often a strong determinant of how the business is launched and its eventual success.

Financing

Setting Boundaries and Constraints

Focus efforts on strategic priorities Provide short-term objectives and action plans - Specific and measurable - Specific time horizon for attainment - Achievable, but challenging Improve operational efficiency and effectiveness - establish rules (SOPs) for employees to follow Minimize improper and unethical conduct - Code of Ethics

Crowdfunding

Funding a venture by pooling small investments from a large number of investors, often raised on the internet.

Incubators provide some or all of the following functions

Funding, Physical space, business services, mentoring, networking

When any two firms have both a ____________ degree of market commonality and highly similar resource bases, a stronger competitive threat is present.

High

Human Capital

Human capital includes strong, skilled management.

If an idea does NOT have the opportunity to become commercialized, it is just an __________.

Idea **The idea must be viable, as well as, able to be commercialized in order to be an opportunity to pursue.

International Expansion: Company decides to become a multinational firm in order to:

Increase size of potential markets - attain economies of scale take advantage of arbitrage opportunities - in every stage of the value chain enhance a product's growth potential - reinvigorating the product life cycle explore reverse innovation - Design & manufacture products locally - export no-frills products to developed markets optimize the location of value chain activity - enhance performance - cost reduction - risk reduction take advantage of learning opportunities

Pace of Innovation Incremental vs. Radical

Incremental - may take 6 months or 2 years - may use a milestone approach, goals & deadlines Radical - may take 10 years or more - may involve open ended experimentation & time consumer mistakes time pacing allows for control of innovation process

Top managers at USA Today meet every Friday to review daily operational reports and year-to-date data. This is an example of A. Behavior Control B. Informational Control C. Strategy Control D. Strategy Implementation

Information Control

Multidomestic strategies use

International division structure Geographic-area division structure Worldwide matrix structure

Entrepreneurial Leadership

Is leadership appropriate for new ventures that requires courage, belief in one's convictions, and the energy to work hard even in difficult circumstances, and that embodies vision, dedication and drive, and commitment to excellence. However, ventures built on the charisma of a single person may have trouble growing "from good to great" once that person leaves. Thus, the leadership that is needed to build a great organization is usually exercised by a team of dedicated people rather than a single leader. The leadership team must attract members who fit with the company's culture, goals, and work ethic. For a venture's leadership to be a valuable resource and not a liability it must be cohesive in its vision, drive and dedication, and commitment to excellence.

Entrepreneurship

Is the creation of new value by an existing organization or new venture that involves the assumption of risk. Even though entrepreneurial activity is usually associated with startup companies, new value can be created in many different contexts. New value can be created in many contexts: - Startup ventures - Major corporations - Family owned businesses - Nonprofit organizations - Established institutions

Strategic Actions

Major commitments of distinctive and specific resources to strategic initiatives

Strategic Actions

Major commitments of distinctive and specific resources to strategic initiatives.

Bankers, venture capitalists, and angel investors agree that the most important asset an entrepreneurial firm can have is strong and skilled _____________________.

Management

external governance control mechanisms

Market for corporate control Auditors Banks and analysts Regulatory bodies Media and public activists

Imitators usually have a strong __________________ orientation. They look for opportunities to capitalize on proven market successes.

Marketing

Factors Affecting a Nation's Competitiveness: Factor Endowments

Nation's position in factors of production, such as skilled labor/infrastructure necessary to compete in a given industry

Entry Strategies

New venture entry strategies need to: - Quickly generate cash flow - Build credibility - Attract good employees - Overcome the liability of newness. New entry strategies typically fall into one of THREE categories - pioneering new entry, imitative new entry, or adaptive new entry.

Pursuing Combination Strategies

One of the best ways for young and small businesses to achieve success is by pursuing combination strategies. By combining the best features of low-cost, differentiation, and focus strategies, new ventures can often achieve something truly distinctive. Entrepreneurial firms are often in a strong position to offer a combination strategy because they have the flexibility to approach situations uniquely. They can often enact combination strategies in ways that the large firms cannot copy. For example, holding down expenses can be difficult for big firms because each layer of bureaucracy adds to the cost of doing business across the boundaries of a large organization. Also, large firms often find it difficult to offer highly specialized products or superior customer services, while entrepreneurial firms can create high-value products and services through their unique differentiating efforts. However, one of the major dangers is that either a large firm with more resources or a close competitor will copy what the new entry is doing. A carefully crafted and executed combination strategy may be the best answer. Nevertheless, competition among rivals is a key determinant of new venture success.

The starting point for any new venture is the presence of an entrepreneurial __________________ .

Opportunity **Opportunities can come from many sources, however all entrepreneurial firms must make the most of changes brought about by new technology, socio-cultural trends, and shifts in consumer demand.

transnational strategy

Optimization of tradeoffs associated with efficiency, local adaptation, and learning Firm's assets and capabilities are dispersed according to the most beneficial location for a specific activity

By _________________ with other companies, through technology, manufacturing, or retail licensing agreements, young or small firms can expand or give the appearance of entering numerous markets or handling a range of operations.

Partnering

Startups with multiple ________________ are more likely to succeed.

Partners

Board of directors have responded to financial crises, corporate scandals, regulator obligations, and investor requests for structural changes. In 2011 Harvard Business Review study of the changes in configuration of boards since 1987, which change has been brought about by government legislation? A. Percentage of boards with 12 or fewer members has increased B. Percentage of directors that are independent has increased C. Percentage of boards that have an avg age of 64 or older has increased D. Avg pay for directors has increased

Percentage of the directors that are independent has increased

Most new entrants use a strategy somewhere between pure imitation and pure _________________ .

Pioneering **That is, they offer a product or service that is somewhat new and sufficiently different to create new value for customers and capture market share.

Among the most important factors to evaluate is the market _____________ for the product or service.

Potential

New entrants with a ___________ new product or highly innovative service may change the way business is conducted in an industry.

Radical

The final step before initiating a competitive response is to evaluate what a competitor's _______________is likely to be.

Reaction

Tactical Actions

Refinements or extensions of strategies usually involving minor resource commitments

Tactical Actions

Refinements or extensions of strategies usually involving minor resource commitments.

Duties of Board of Directors:

Regularly evaluate, and, if necessary, replace the CEO; determine management compensation; review succession planning. Review & approve financial objectives, major strategies, and plans of the Corporation. Provide advice and counsel to top management. Select & recommend candidates for the Board of Directors; evaluate board processes. Review the adequacy of all compliance systems.

Competitive dynamics are likely to be most intense among companies that are competing for the same customers or who have highly similar sets of __________________.

Resources

Resources

Resources are an ESSENTIAL component of a successful entrepreneurial launch. For STARTUPS, the most important resource is usually money because a new firm typically has to expend substantial sums just to start the business. However, financial resources are not the only kind of resource a new venture needs. HUMAN CAPITAL and SOCIAL CAPITAL are also important. Many firms also rely on government resources to help them thrive.

Simple Structure: Disadvantages

Responsibility not understood self-interest, employees taking advantage of lack of regulations limited opportunities for upward mobility

Entrepreneurial Activity involves _______________ .

Risk

Examples of Adaptive New Entrants Table

SEE Exhibit 8.3 on Powerpoint Slide 29. An adaptive new entry approach does not involve "reinventing the wheel," nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation. Exhibit 8.3 presents examples of four young companies that successfully modified or adapted existing products to create new value.

Setting a Direction

Scan environment to develop - Knowledge of all stakeholders - Knowledge of salient environmental trends and events Integrate that knowledge into a vision of what the organization could become

Three Activities of Leadership

Setting a Direction Designing the organization Nurturing a culture dedicated to excellence and ethical behavior

Compared to large firms, new ventures often have __________________ organizational structures that make decision-making both easier and faster.

Simple **The smaller size also helps young firms change more quickly when upgrades in technology or feedback from the marketplace indicates that improvements are needed.

Social Capital

Social capital includes: - Extensive social contacts & strategic alliances which can be facilitated using technology, manufacturing, or retail alliances. - Federal, state, & local government resources, such as, government contracting, Loan guarantee programs, and training, counseling, & support services.

Political and economic risk

Social unrest Military turmoil Demonstrations Violent conflicts and terrorism Laws and their enforcement

Mostly ideas consist of problems and ________________.

Solutions

Start-up Ventures

Start-up venture ideas can come from: - Current or past work experiences - Hobbies or suggestions by friends or family For established firms, opportunities can come from: - Existing customers - Suggestions by suppliers - Technological developments **For all firms, change or chance events can uncover unmet consumer needs.

Maintaining an effective culture

Storytelling Rallies or pep talks by top executives

International Strategy: Strengths? Limitations?

Strengths: - leverage and diffusion of a parent firm's knowledge and core competencies - lower costs because of less need to tailor products and services Limitations - limited ability to adapt to local markets - inability to take 4 advantage of new ideas and innovations occurring in local markets

Multidomestic Strategy: Strengths? Limitations?

Strengths: - ability to adapt product and services to local market conditions - ability to detect potential opportunities for attractive niches in a given market, enhancing revenue Limitations: - decreased ability to realize cost savings through scale economies - greater difficulty in transferring knowledge across countries - may lead to "overadaptation" as conditions change

Transnational Strategy: Strengths? Limitations?

Strengths: - ability to attain economies of scale - ability to adapt to local markets - ability to locate activities in optimal locations - ability to increase knowledge flows and learning Limitations: - unique challenges in determining optimal locations of activities to ensure cost and quality - unique managerial challenges in fostering knowledge transfer

Global Strategy: strengths? Limitations?

Strengths: - strong integration across various businesses - standardization leads to higher economies of scale, which lowers costs - helps create uniform standards of quality throughout the world Limitations: - limited ability to adapt to local markets - concentration of activities may increase dependence on a single facility - single locations may lead to higher tariffs and transportation costs

PHASE 1: Discovery Phase

The discovery phase is about becoming aware of the new business concept: - Can be spontaneous and unexpected. - Can also result from a deliberate search. Businesses should ask themselves: Where are the new venture opportunities? What might be a creative solution to a business problem? Many entrepreneurs report that their idea for a new venture came through some unexpected insight, often based on their prior knowledge, that gave them an idea for a new business. Viable opportunities often emerge only after a concerted effort. To stimulate the discovery of new opportunities, companies often encourage creativity, out-of-the-box thinking, and brainstorming.

PHASE 2: Evaluation Phase

The evaluation phase occurs AFTER an opportunity has been identified, and involves analyzing this opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture. Ideas developed by new product groups or in brainstorming sessions are TESTED by various methods, including talking to potential target customers and discussing operational requirements with production or logistics managers. FEASIBILITY ANALYSIS is used to evaluate these and other critical success factors. This type of analysis often leads to the decision that a new venture project should be discontinued. Only if the venture concept continues to seem viable would a more formal business plan be developed.

Market Commonality

The extent to which competitors are vying for the same customers in the same markets

Resource Similarity

The extent to which rivals draw from the same types of strategic resources.

How a competitor is likely to respond will depend on THREE factors:

The likelihood of competitive reaction depends on: - MARKET DEPENDENCE - Competitor's resources - The reputation of the firm that initiates the action - the actor's reputation. Choosing not to respond is a choice & includes: FORBEARANCE: holding back on an attack CO-OPETITION: both cooperating & competing. Working together behind the scenes to achieve industrywide efficiencies.

Opportunity Recognition

The process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited. Changes in the external environment can lead to new business creation, but the discovery of these new ideas is NOT enough. They then need to be evaluated to find out if they're strong enough to become new ventures. Entrepreneurs must go through a process of identifying, selecting, and developing potential opportunities.

Overall Cost Leadership

This strategy has an advantage due to: Simpler organizational structure & smaller size Quicker decision-making to upgrade technology & integrate marketplace feedback controls costs.

Differentiation

This strategy is able to compete by Offering a unique value proposition through innovation & superior use of new technology Deploying resources in a radical new way.

Focus

This strategy means having the ability to use niche strategies that fit the small business model. Focus strategies work for small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm.

Viable Opportunities

Viable opportunities have the following qualities: They are attractive in the marketplace. They are achievable; practical & physically possible. They are durable or attractive long enough for the development and deployment to be successful. They are value-creating & potentially profitable; the benefits MUST surpass the cost of development by a significant margin.

Vision

Vision may be an entrepreneur's most important asset. Entrepreneurs envision realities that do not yet exist. With vision, entrepreneurs are able to exercise a kind of transformational leadership that creates something new and, in some way, changes the world. In order to develop support, get financial backing, and attract employees, entrepreneurial leaders must share their vision with others.

Why do firms differ?

Western Firms (US/UK vs. German/French) - have different (short vs. long term) planning horizons challenge is to understand roots of these differences when trying to compete globally

Innovation Challenges/dilemmas Seeds vs weeds

What project should we pursue seeds are likely to bear fruit; weeds should be cast aside

Motivation & capability to respond means asking:

What type of competitive response is necessary? What resources are needed to fend off a competitive attack?

Holding Company Structure

Where businesses in a corporation's portfolio are the result of unrelated diversification -Variation on the divisional structure -Similarities are few, so synergies are limited -Operating divisions have autonomy -Corporate staffs are small and have limited involvement, relying on financial controls and incentive programs to obtain performance

Matrix Organizational Structure

Where functional departments are combined with product groups on a project basis. - Functional departments, product groups and geographical units are combined. - Individuals have two managers. - Project managers and functional managers share responsibility

Innovation Challenges/dilemmas Experience vs. Initiative

Who should lead an innovation project? senior managers have more experience and credibility mid level employees may be innovators themselves and have more enthusiasm

Global strategies use

Worldwide functional structure Worldwide product division structure Worldwide holding company structure

Behavioral Control: Rules

Written/explicit guidelines that provide external constraints on behavior - associated with standardized output - tasks are generally repetitive and routine - little need for innovation or creative activity

forbearance

a firm's choice of not reacting to a rival's new competitive action

Pioneering New Entry

a firm's entry into an industry with a radical new product or highly innovative service that changes the way business is conducted

Imitative New Entry

a firm's entry into an industry with products or services that capitalize on proven market successes and that usually have a strong marketing orientation

co-opetition

a firm's strategy of both cooperating and competing with rival firms

Board of Directors

a group that has a fiduciary duty to ensure that the company is run consistently with the long-term interests of the owners, or shareholders, of a corporation and that acts as an intermediary between the shareholders and management

Designing the Organization

a strategic leadership activity of building structures, teams, systems, and organizational processes that facilitate the implementation of the leader's vision and strategies

oRGANIZATIONAL cULTURE

a system of shared meaning held by members that distinguishes the organization from other organizations

informational control

ability to respond effectively to environmental change

Shareholder activism

actions by large shareholders to protect their interests when they feel that managerial actions of a corporation diverge from shareholder value maximization

shareholder activism

actions by large shareholders to protect their interests when they feel that managerial actions of a corporation diverge from shareholder value maximization.

expropriation of minority shareholders

activities that enrich the controlling shareholders at the expense of the minority shareholders. -controlling shareholders may take actions that decrease aggregate firm performance if their personal gains from expropriation exceed their personal losses from their firm's lowered performance.

New Competitive Action

acts that might provoke competitors to react, such as new market entry, price cutting, imitating successful products, and expanding production capacity

emotional intelligence

an individual's capacity for recognizing his or her own emotions and those of others

excellent and ethical organizational culture

an organizational culture focused on core competencies and high ethical standards

information power

arises from a manager's access, control, and distribution of information that is not freely available to everyone in an organization

XYZ's CEO scrapped the company's commission-based reward system because it was rewarding employees for inappropriate behavior. This is an example of A. setting a direction. B. designing the organization. C. unethical behavior. D. failure to maintain the status quo.

b. Designing the organization

Political barriers

barriers to change related to conflicts arising from power relationships

motivation

being driven to achieve for the sake of achievement, not simply for money or status

barriers to change

characteristics of individuals and organizations that prevent a leader from transforming an organization - vested interest in status quo - systemic barriers - behavioral barriers - political barriers - personal time constraints

Setting a Direction Benefits:

clear future direction a framework for the organization's mission and goals enhanced employee communication, participation, and commitment.

Factors Affecting a Nation's Competitiveness: Firm strategy, structure, and rivalry

conditions in the nation governing how companies are created, organized, and managed as well as the nature of domestic rivalry

Managerial Rewards and Incentives

contract based outcomes - rewards & compensations agreements that align management & stockholder interests

Agency Theory

deals with the relationship between principals and agents

Market dependence

degree of concentration of a firm's business in a particular industry

reward power

depends on the ability of the leader or manager to confer rewards for positive behaviors or outcomes

legitimate power

derived from organizationally conferred decision-making authority and is exercised by virtue of a manager's position in the organization

continue exploring

experiments may require furither investments to reduce uncertainty and fully test assuptions

Adjust the game plan

experiments sometimes reveal that when one way is blocked another is open; if so, change the approach and keep experimenting

Sustaining Innovations

extend sales in an existing market, usually by enabling new products or services to be sold at higher margins

Globalization

increase in international exchange, including trade in goods and services as well as exchange of money, ideas, and information - growing similarity of laws, rules norms, values and ideas across countries

Competitive Dynamics

intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace

Innovation Challenges/dilemmas

internal vs external staffing bulding capabilities vs. collaborating incremental vs. preemptive launch

Real Options Analysis helps firm decide whether to:

investment tool used to manage uncertainty associated with launching new ventures - invest additional funds to accelerate the activity - delay further investment in order to learn more - shrink the scale of the activity - abandon the activity

Traditional Control System

involves lengthy time lags, "single-loop" learning

Strategic Business Unit (SBU) Structure

is where similar products or markets are grouped into units to achieve synergy - variation on the divisional structure - similar divisional grouped into homogeneous units - synergies achieved through related diversification -- leverage core competencies, sharing infrastructures, using market owner - each SBU operates as a profit center

Power

leader's ability to get things done in a way he or she wants them to be done

Conditions that must be met for principal-principal (PP) conflicts to occur include all of the following except

legislation that protects interests of minority shareholders

Regionalization

may be more reasonable - distance still matters - commonalities of language, culture, economics, legal & political systems, and infrastructure all make a difference - trading blocs and free trade zones ease trade restrictions, taxes & tariffs

The Modern Corporation Corporation

mechanism created to allow different parties to contributed capital, expertise, and labor for maximum benefit of each party

Contemporary Approach Behavioral Control:

method of organizational control in which firm influences actions of employees though: - culture -rewards - boundaries behavior control is focused on implementation - doing the right things

external governance control mechanisms

methods that ensure that managerial actions lead to shareholder value maximization and do not harm other stakeholder groups that are outside the control of the corporate governance system

CEO as staff only: Advantages

mgt role separate from governance role fewer conflicts of interest limited power of CEO stronger governance more supervision over CEO performance

Transparency International Corruption Perceptions Index (CPI)

most corrupt countries in the world 100 (very clean) to 0 (highly corrupt)

Factors of production must be industry & firm specific

must be rare, valuable, difficult to imitate, and rapidly & efficiently deployed

Strategic Leadership

nurturing an excellent & ethical organizational culture is a key leadership activity, requiring that managers & leaders: - accept personal responsibility for developing & strengthening ethical behavior -consistently demonstrate that such behavior is central to the mission & vision of the firm - develop & reinforce ethical behavior via: --role models --corporate credos & codes of conduct -- reward & evaluation systems, policies, and procedures

Outsourcing

occurs when a firm decides to utilize other firms to perform value creating activities that were previously performed in-house

Managerial Conceit

overconfidence and the illusion of control - managers believe they possess superior expertise for managing uncertainty, therefore - managers may believe they can solve any problem - downside loss v. upside gain

Principals

owners of the firm (stockholders)

Currency Risks

potential threat to a firm's operations in a country due to fluctuations in the local currency's exchange rate - currency exchange fluctuations - appreciation of the U.S. dollar

Factors Affecting a Nation's Competitiveness: Related and Supporting Industries

presence or absence in the nation of supplier industries and other related industries that are internationally competitive

Whereas ________________________ are often associated with a low cost leader strategy, ____________________________ are frequently an important aspect of a differentiation strategy.

process innovations; product innovations

Leadership

process of transforming organizations from what they are to what the leader would have them become

Integrity based ethics programs

programs for building ethical organizations that combine a concern for law with an emphasis on managerial responsibility for ethical behavior, including (1) enabling ethical conduct; (2) examining the organization's and members' core guiding values, thoughts, and actions (3) defining the responsibilities and aspirations that constitute an organization's ethical compass

Integrity based ethics programs

programs for building ethical organizations that combine a concern for law with an emphasis on managerial responsibility for ethical behavior, including (1) enabling ethical conduct; (2) examining the organization's and members' core guiding values, thoughts, and actions (3) defining the responsibilities and aspirations that constitute an organization's ethical compass

Compliance-based ethics Programs

programs for building ethical organizations that have the goal of preventing, detecting, and punishing legal violations

CEO Duality Unity of Command (in favor of duality)

provides clear focus eliminates confusion and conflic enhances a firm's responsiveness enables quick decisions based on first-hand knowledge

Multidomestic Strategy

puts emphasis on differentiating products and services to adapt to local markets: - decisions are decentralized - products & services are tailored to local use - consider language, culture, income levels, customer preferences, distribution systems - markets can expand rapidly - prices are differentiated by market - pressure for local adaptation is high; pressure for lowering costs is low

Demand Conditions

refer to the demands that consumers place on an industry

CEO Duality Agency theory (in favor of separation)

safeguards against corruption or incompetence removes conflict of interest, especially regarding ceo succession improves perceptions of legitimacy

Transnational Strategy

seeks global competitiveness via trade-offs: - efficiency vs. local adaptation vs. organizational learning - assets & capabilities are disbursed according to the most beneficial location for specific activity; some value chain activities are centralized, some are decentralized ---economies of scale, increased knowledge flows - pressures for both local adaptation and lowering costs are high

Business incubator

supports and nurtures fledgling entrepreneurial ventures until they can thrive on their own as a stand-alone businesses

offshoring

takes place when a firm decides to shift an activity that they were previously performing in a domestic location to a foreign location

social skill

the ability to build and manage relationships to move people in the desired direction

self-regulation

the ability to control or redirect disruptive emotions or impulses and adapt to changing circumstances

self-awareness

the ability to know your own emotions, drives, values, and foals as well as recognize their impact on others

informational control

the ability to respond effectively to environmental change

behavioral control

the appropriate balance and alignment among a firm's culture, rewards, and boundaries

Corporate Entrepreneurship

the creation of new value for a corporation, through investments that create either new sources of competitive advantage or renewal of the value proposition

Market Commonality

the extent to which competitors are vying for the same customers in the same markets

Resource similarity

the extent to which rivals draw from the same types of strategic resources

Factors Affecting a Nation's Competitiveness: Demand Conditions

the nature of home-market demand for the industry's product or service

Strategic Control

the process of monitoring and correcting a firm's strategy and performance

strategic control

the process of monitoring and correcting a firm's strategy and performance

Leadership

the process of transforming organizations from what they are to what the leader would have them become

Corporate Governance

the relationship among various participants in determining the direction and performance of corporations primary participants are shareholders, management, board of directors

takeover contraint

the risk to management of the firm being acquired by a hostel raider.

Implicit boundaries

unwritten standards of acceptable behavior - dress code -ethical matters - way org conducts business

Behavioral Control: Rewards

use of performance-based incentive systems to motivate - measurement of output and performance is rather straightforward -most appropriate in orgs pursuing unrelated diversification strategies - rewards may be used to reinforce other means of control

Innovation

using new knowledge to transform organizational processes or create comerccially viable products and services latest technology, results of experiments, creative insights, competitive information

Shelve

when no clear path forward exists, it is best to cease investing until something changes

Double down

when winning strategies are identified, its time to move forward rapidly including making additional investments if necessary

Divisional Organizational Structure

where products, projects, or product markets are grouped internally - Divisions are relatively autonomous, consisting of products & services that are different from those of other divisions - Each division includes its own functional specialists typically organized into departments - Division executives help determine product-market & financial objectives

Functional Organizational Structure

where the major functions of the firm are grouped internally - organization is small, with a single or closely related product or service, high production volume, perhaps some vertical integration -owner manager needs specialists in various functional areas - chief executive has responsibility for coordination & integration of the functional areas

Agents

who are the people paid by principals to perform a job on their behalf (management)

behavioral barriers

barriers to change associated with the tendency for managers to look at issues from a biased or limited perspective based on their prior education or experience

key characteristic of the modern corporation is the separation of ownership from control. to minimize the potential for managers to act in their own self-interests or "opportunistically" the owners can implement some governance of mechanisms:

1. committed and involved board of directors that acts in the best interests of the shareholders to create long-term value 2. shareholder activism, wherein the owners view themselves as shareowners versus shareholders and become actively engaged in the governance of the corp. 3. managerial incentives, "contract-nased outcomes", which consists of reward and compensation agreements. goal is to careful craft managerial incentive packages to align the interests of management with those of the stockholders.

four characteristics of contemporary control systems in order to be successful:

1. focus on constantly changing information that has potential strategic importance. 2. the information is important enough to demand frequent and regular attention from all levels of the organization. 3. the data and information generated are best interpreted and discussed in face-to-face meetings 4. the control system is a key catalyst for an ongoing debate about underlying data, assumptions, and action plans.

Durable

Must be attractive long enough for the development and deployment to be successful, the window of opportunity must be long enough for it to be worthwhile

Angel Investors

Private individuals who provide equity investments for seed capital during the early stages of a new venture

Value Creating

The opportunity must be potentially profitable, the benefits must surpass the costs of development by a significant margin

Achievable

The opportunity must be practical and physically possible

Attractive

There must be a market demand for the new product or service

systemic barriers

barriers to change that stem from an organizational design that impedes the proper flow and evaluation of information.

principal-prinicipal conflicts

conflicts between two classes of principals- controlling shareholders and minority shareholders- within the context of a corporate governance system.

Collectively, shareholders have the power to

direct the course of corporations -power has intensified in recent years because of the increasing influence of large institutional investors such as mutual funds (T. Rowe Price and Fidelity Investments) & retirement systems (TIAA-CREF) -institutional investors hold approx. 50 percent of all listed corporate stock in the United States..