Chapter 1

The Strategist Follows a Three-step Process (AFI):

1. Analyze the external and internal environments. 2. Formulate an appropriate business and corporate strategy. 3. Implement the formulated strategy through structure, culture, and controls.

What are the 5 steps of Stakeholder Impact Analysis?

1. Who are our Stakeholders? 2. What are their interests or claims? 3. What opps or threats do they present? 4. Economic, legal, ethical, phil. responsibilities? 5. What should we do to address these concerns?

About _____% of a firm's profitability depends on the industry

20

A firm's strategy (firm effects) can explain up to ______% of its performance

55

For a strategist, which of the following is not an implication of effective strategic management? The difference between a firm's success and failure lies in its strategy. It is necessary to maintain an awareness of key stakeholders and how they can affect or be affected by managerial actions. A firm's performance is determined by a set of independent factors, which includes firm and industry effects. The principles of strategic management can be applied universally to all organizations.

A firm's performance is determined by a set of independent factors, which includes firm and industry effects. Firm and industry effects are interdependent. Both are relevant in determining firm performance.

Corporate Social Responsibility (CSR):

A framework to recognize and address economic, legal, social, and philanthropic expectations

Legitimacy

A stakeholder has a legitimate claim when it is perceived to be legally valid or otherwise appropriate.

Urgency

A stakeholder has an urgent claim when it requires a company's immediate attention and response

Power

A stakeholder has power over a company when it can get the company to do something that it would not otherwise do.

What are the three elements of strategy?

AFI Analysis, Formulation, Implementation

Diagnosis of the competitive challenge =

Analysis

Performance of two or more firms at the same level

Competitive Parity

Benefits of Effective Stakeholder Management:

Cooperation and information availability Lowered costs Greater organizational adaptability and flexibility More predictable and stable returns Stronger reputation

External stakeholders:

Customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels

Examples of Industry effects:

Entry and exit barriers Number and size of companies Types of products and services offered

Guiding policy to address the competitive challenge =

Formulation

Which of the following reasons justifies the view that functional managers should be allowed to initiate strategic initiatives based on autonomous actions?

Functional managers are much closer to the final products, services, and customers than corporate- or business-level managers.

Strategy is not...

Grandiose statements of desire A failure to face a competitive challenge Operational effectiveness, competitive benchmarking, or other tactical tools

Global strategy:

How and where should the firm compete: local, regional, national, or international?

Business strategy:

How should the firm compete? cost leadership, differentiation, or integration?

A set of coherent actions to implement the firm's guiding policy =

Implementation

Stakeholder Strategy:

Managing stakeholders in order to gain and sustain competitive advantage Ex: Target

Threadless:

Online design community and apparel store Let consumers "work for them" Community members vote on which t-shirt designs Customers play a critical role Idea generation, design, marketing, sales

Which of the following statements should ideally reflect a firm's strategy for competitive advantage?

Our aim is to create superior customer value while controlling costs. Grandiose statements are not strategy; they provide little managerial guidance and frequently fail to address the economic fundamentals.

Which of the following scenarios best illustrates a good stakeholder strategy?

PA Corp. distributes only 70 percent of its annual profit after taxes to shareholders, while the remaining is distributed among employees and the local community, and invested for further research.

The Pyramid of Corporate Social Responsibility:

Philanthropic Ethical Legal Economic

Managers must note three stakeholder attributes:

Power Legitimacy Urgency

What are the rewards of superior value creation and capture?

Profitability Market share

Companies with a good strategy....

Provide products/services at an affordable price Make a profit Benefit both parties Make society better

Strategic Positioning:

Staking out a unique position within an industry to provide value to customers, while controlling costs

Internal stakeholders:

Stockholders, employees (including executives, managers, and workers), and board members

The ability to outperform competitors or the industry average over a prolonged period of time

Sustainable Competitive Advantage

Strategy is the art and science of success and failure

TRUE

Target Corporation

Target Corporation has gathered numerous awards that reflect its strong relationship with its stakeholders. It has been named on lists such as best places to work, most admired companies, most ethical companies, best in class for corporate governance, and grassroots innovation

Firm effects are a more important factor in determining firm performance than external environment forces

True

If any stakeholder withholds participation in the firm's exchange relationships, it can negatively affect firm performance

True

Trust between corporations and society have deteriorated because of black swans

True (Real Estate Bubble: 2008 financial crisis)

Competitive Disadvantage:

Underperformance relative to other competitors in the same industry or the industry average

Corporate strategy:

Where should the firm compete? industry, markets, and geography?

Competitive Advantage:

a firm that achieves superior performance relative to other competitors in the same industry or the industry average

Strategy:

a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

Strategic Management:

an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage (AFI Framework)

To assess competitive advantage, you have to compare a firm's performance to a ____________________

benchmark (industry average)

Stakeholders have a vested ________ or ______________ in the performance and continued survival of the firm.

claim interest (internal vs. external)

The greater the difference between value creation and cost, the greater the firm's economic __________________ and the more likely it will gain _______________ ___________________

contribution competitive advantage

Formulation is accomplished through a strategy formulation, resulting in the firm's _______________, ______________, and ________________ strategies

corporate business functional

Competitive advantage has to come from performing different activities or performing the same activities _______________ than rivals

differently (Ex: Walmart as a cost leader)

A firm is embedded in an _______________ relationship with internal and external stakeholders.

exchange

Firm effects:

firm performance that is attributed to managerial actions

Stakeholder strategy is an integrative approach to managing a diverse set of stakeholders effectively in order to

gain and sustain competitive advantage.

The best example of a firm's external stakeholder is a(n) shareholder who has invested money in the firm but is not employed board member from a wholly-owned foreign subsidiary of the firm government agency that regulates the prices of products employee of the firm who is responsible for a contract project

government agency that regulates the prices of products manufactured by the firm.

Today, the metaphor of a black swan describes the high impact of a highly ____________ event.

improbable

Analysis is accomplished through a strategy analysis of the firm's ______________ and ____________ environments

internal external

Managers should try to transform threats into _____________________

opportunities

Competitive advantage is always _____________, not absolute

relative

To achieve superior performance, companies compete for _________________

resources

The Threadless business model translates market research and design into quick ___________.

sales Threadless has sold every T-shirt it has printed

A core tenet of stakeholder strategy is that a

single-minded focus on shareholders alone exposes a firm to undue risks that can undermine economic performance and can even threaten the very survival of the enterprise.

If a company wants to gain a competitive advantage in a highly competitive industry, it should ideally execute an integrated cost-leadership and differentiation position. stake out a unique position within the industry provide goods or services similar to its competitors at higher prices. copy the strategies of other firms through competitive benchmarking.

stake out a unique position within the industry. The key to successful strategy is to combine a set of activities to stake out a unique position within an industry. Competitive advantage has to come from performing different activities or performing the same activities differently than rivals are doing. Competing to be similar but just a bit better than a competitor is likely to be a recipe for cutthroat competition and low profit potential.

BlueStainless Corp. has been able to gain and sustain a competitive advantage due to its strong relationship with its employees, customers, suppliers, and local communities. The company believes in lifetime employment and ensures that its employees grow along with the company. Investors are more than satisfied with the returns on their investments. Also, 3 percent of the company's profit is spent on community development. With initiatives like these, customers feel privileged to associate themselves with BlueStainless products. This scenario best illustrates the implementation of a

stakeholder strategy

Which of the following stages of the strategic management process involves an evaluation of a firm's external and internal environments? strategy implementation strategy control strategy formulation strategy analysis

strategy analysis

Industry effects describe the underlying economic _________________ of the industry and are determined by elements common to all industries

structure

Operational effectiveness, competitive benchmarking, and other tactical tools support competitive strategy, but are not sufficient to ___________ it.

sustain

strategic positioning requires managers to make ______________

trade-offs

The key to successful strategy is the combination of activities for a __________ position in an industry

unique

Strategy is about creating superior ____________

value