Guide to Strategic Management

What is a joint venture?

Joint venture is a corporate combination by two or more capable firms who are both lacking in one common element to enter a market or new business venture. Usually involve joint ownership of a new entity or each taking an equity position in the other.

What new approach is needed to meet the quality competition in the future (Pg 8)?

Organizations will have to enlarge their strategic business plans to include quality goals and systems.

What are the three potential motives to be socially responsible?

1. It is the moral thing to do 2. It is good business 3. It is required (laws, regulations)

What does "differentiation" require?

Differentiation requires a business to have sustainable advantages that allow it to provide buyers with something uniquely valuable to them.

How does the potential reaction of competitors affect strategic choice?

Example: A strategy to lower prices to gain market share may result in lower profits if a primary competitor matches the price change.

What is the definition of an external environment and what are the three interrelated subcategories that constitute the external environment?

External Environment - Opportunities and threats the organization faces currently or may in the future -Remote Environment -Industry Environment -Operating Environment

Following the industrial revolution, what evolution in management resulted in the key system change where planning for quality was separated from execution and factories created a central inspection department to restore balance?

Fredrick Taylor's system of scientific management.

What do effective rewards achieve/align?

They should align manager and employee priorities with organizational objectives and shareholder values.

What does BHAG mean and what does it represent?

-Big, Hairy, Audacious goals -They are either quantitative or qualitative, have a time frame, are measurable, and require a creative process -Set performance outcomes for the key success factors

What is vertical integration?

1. Strategy to acquire firms that supply inputs (backward integration) or are customers of outputs (forward integration). 2. Ex. A furniture shop acquiring a chain of furniture retail stores (forward) or a lumber mill that produces the materials they use to build furniture (backward).

What is a SWOT analysis, on what two areas does it focus, and under what conditions is it less effective as a tool?

1. Strengths, weaknesses, threats, opportunities 2. Simple, logical approach used to identify the internal resources and capabilities of a firm in context with its external environment 3. Focuses on internal and external analysis 4. Not effective when downsizing or reengineering

Who are two of the people who helped lead the quality initiatives in Japan, and later in the United States?

1. W. Edwards Deming 2. Joseph Juran

What are the four key activities that must to aligned to implement strategy (Fig. 16, pg. 35)?

1. identify short term objectives 2. initiate specific functional tactics and action plans 3. communicate policies to empower people 4. design effective rewards

What is the purpose of short-term objectives?

1. make long term objective operational through current year tangents. 2. identify potential conflicts and issues in current functions and policies that could create confusion or adverse consequences 3. create relevant feedback

What are three important qualities of short-term objectives and be able to discern good from poor short-term objectives when given a list?

1. they are measurable 2. they provide a time frame for meeting the objective that identifies its property 3. they create a clear path towards achieving the long term objective

What is often perceived to be a limiting factor to pursuing ISO 9000:2000 standard?

The cost and the certification to be accepted as a supplier or provider of services.

Instead of the average, what should a firm use to performance compare its performance results to industry wide performance data? Why?

"In performance benchmarking to industry success factors, a firm should look at the "best in class" results (often the average of the top 10%) rather than comparing to the overall averages. Comparisons to the overall average are similar to targeting mediocrity. Comparing to the best in class sets performance excellence as the goal and clearly identifies the opportunity for improvement. Performance benchmarking can also be done across industries, particularly in the support services area" (24).

What is the key word that explains what policies must do to make strategy implementation effective?

Policies are guidelines designed to EMPOWER managers and their subordinates to think, make decisions and take actions.

What is a 'stakeholder" in an organization and provide a list of examples?

Stakeholders are anyone with a vested interest in the success of the organization. They could include customers, employees, suppliers, stockholders, creditors, the community, or even the government.

What is a strategic alliance?

Strategic alliance is an agreement by two firms to work together for a defined period on a joint project for which they each have something to contribute. Different from joint venture since a new company is not created.

What does strategic control mean and what are the two key questions related to strategic control?

Strategic control means that the performance of a strategy is systematically tracked as it is implemented, detects changes in its underlying premises, and makes necessary adjustments. The two key questions are: 1. Are we moving in the right direction? 2. How are we performing?

What quality strategies evolved in Japan after WWII and why?

The following strategies evolved in Japan because upper management in the U.S. ignored the strategies that Deming and Juran had created -Upper management personally took charge of leading the quality revolution -All levels and functions were trained to manage for quality -Workers were involved in Quality Circles where they could work across functions to examine and discuss how to improve their work processes and the quality results. The Quality Circles even met outside of scheduled work times and became an important part of the evolving social culture. It is still common in Japan for workers to socialize after work.

What does a turnaround strategy usually focus on and what change usually precedes it?

The turnaround most often focuses on cost reduction (decreasing workforce, improving processes, reducing inventory) or asset reduction (sale of land, buildings, equipment not essential to the core activity). Most turnaround strategies are preceded by a change in leadership

What must managers of diversified firms do in addition to dealing with each business's strategic situation (pg 28)?

They must also develop and promote a corporate strategy that rationalizes the collection of business in their portfolio.

What is the purpose of action plans and tactics and what makes them effective?

They must be developed to achieve the short term objectives. To be effective they must be: -specific -have a time horizon -participants

What three ingredients are critical to the success of a strategy?

Strategies must place realistic requirements on the firm's resources, be consistent with the conditions in the competitive environment, and be carefully executed.

In a typical corporation, who are the strategic managers at the highest level who are responsible for overseeing the creation and accomplishment of the company mission?

The Board of Directors

What is the purpose of core (grand) strategies?

They evolve from the strategic analysis and direction to shape the general approach regarding how the long-term objectives will be attained.

In Deming's Point Fourteen, the Shewhart Cycle is emphasized. This Cycle is called the Deming Cycle in Japan. The cycle has been abbreviated into four steps called the PDSA Cycle. What are the four steps (words) represented by PDSA?

1. Plan: What are you trying to change? What idea are you testing? What will you measure? Plan your change. 2. Do: Pilot your test. What were the results? Document the results. 3. Study: What happened? Summarized what you learned. 4. Act: Revise plan and retest. Spread or expand test. Implement change on a larger scale.

What are the four key perspectives that Kaplan and Norton identify in the Balanced Scorecard as key links to achieving the company's specific vision and strategy?

1. Learning and Growth - measured by human resource development and satisfaction 2. Business Process - measured by key process outcomes 3. Customer - measured by customer satisfaction and growth 4. Financial - measured by key financial results

Describe the Six-Sigma approach to continuous improvement and its objectives?

Six-Sigma provides a highly rigorous and analytical approach to quality and continuous improvement with an objective to improve profits through deficit reduction, yield improvement, improved customer satisfaction and best-in-class performance.

What is the "core competence" of a firm?

The core competence of a firm is the capability or skill resident in the firm that must be identified, nurtured, and deployed to provide a sustainable competitive advantage.

What is a functional organizational structure, in what kind of firms does it predominate, what is the primary strategic advantage, and what is the primary strategic challenge in this type of structure?

Tasks are divided into functional specialities to enable the personnel to concentrate on only one aspect of the necessary work. The main advantage is that is achieves efficiency through specialization. The primary challenge is that the effective coordination of the functional units in support of strategic objectives.

What does "cost leadership" require?

Cost leadership requires a business to provide its product or service at a cost below what competitors can achieve.

What is a value chain analysis (VCA)?

"Another internal analysis model is the Value Chain Analysis (VCA). The VCA looks at a business as a chain of activities that transform inputs into outputs that customers will value. Some argue that the VCA is the most effective way to analyze the internal strengths and weaknesses of a firm because it is a process approach that examines how different internal activities contribute to customer value. The three primary sources of customer value come from activities that: (1) differentiate the product, (2) lower the product cost, and (3) meet customers' needs quickly. " (21)

What is activity based cost accounting and what does it accomplish?

"Firms that are committed to the VCA approach are changing to an Activity-Based Cost (ABC) accounting system to support this analysis. ABC assigns costs to each key activity to help analyze if the activity is efficient and adding value to the customer. Others have established special activity cost estimating methods to create this information in addition to the traditional cost accounting system. In any case, the assignment of costs to each key activity provides another means to relate cost to the value being added for the customer" (22).

Are mergers usually successful? Explain.

Often times, mergers are not successful. Due to the clashes of two very different cultures, resistance is created and success becomes difficult.

What is meant by "quality is in the system" (one of the critical management methods of quality).

Quality is in the systems that converts inputs into outputs and most problems are the outcomes of inadequate processes and systems rather than the people working in them.

What became the central activity of the quality oriented departments?

The central inspection department's primary activity was to separate the bad product from the good without disrupting production schedules. Quality inspectors often focused on the end of the production process to try to keep defective products from being shipped to customers.

Understanding the dimensions of the diagram on page 33, be able to match the primary strategies with each quadrant (Note: dimensions may be presented differently than in the text; strategies will be provided so you can insert the letter related to each strategy).

pg. 33

(SHORT ANSWER - 20 PTS) Strategic Model -- I will provide you with the strategic management model shown in the handouts without the labels. The model will show the boxes and all of the arrows. You will need to fill in the content of the boxes except for the Core Ideology box at the top and the Strategic Analysis and Direction box in the middle. Some boxes may contain one word as a prompt. All boxes will include lines indicating the number of words to be inserted.

MODEL FOUND ON PAGE 9

What is a division or strategic business unit (SBU) structure, what kinds of firms use it, what is the key strategic advantage, and what is the key strategic disadvantage of this type of structure?

corporate management delegates profit responsibility and authority for strategic management of district business entities to expedite decision making. The advantage is that is forces authority and responsibility down the appropriate level to provide rapid response and expertise. The disadvantage is the structure that it fosters potentially is dysfunctional in competing among SBUs for corporate level resources.

What is the purpose of the internal analysis?

The purpose of an internal analysis is to develop a realistic analysis of the firm's resources and capabilities; the areas which it has the ability to change and control

What is a key success factor (KSF)?

Things that create a competitive for the organization when they are done extremely well. Focus on beating themselves, accomplish the outcomes set by their BHAGs.

What three things are required for action plans and tactics to be effective?

Three things that are required include: -Downsizing -Team management -outsourcing

What is the primary reason to develop a quality culture (pg 41)?

To create an organization that can adapt and embrace rapid change.

When was the Malcolm Baldrige Quality Award established and what was its purpose?

To create recognition for companies that developed a focus on customer satisfaction and internal quality. It was established in 1987.

Of several ways to measure quality, what is the best way?

To measure customer satisfaction based on the various attributes that they have identified as being important

How is the CEO's principle duty often defined and what role do they play in strategic planning?

The CEO will provide long-term direction for the planning process after soliciting help from the senior leadership team. The CEO is ultimately responsible for the firm's success, so that makes the planning process especially important. Table 1 on page 11 also says the CEO is also responsible for financial performance and the achievement of non-financial goals.

What is horizontal integration?

1. Strategy to grow through acquisition of one or more similar firms operating at the same stage of the production-marketing chain. 2. Ex. Furniture manufacturer acquiring other furniture manufacturers

What is the difference between performance and process benchmarking and what is the ultimate objective of process benchmarking?

"Process benchmarking not only identifies the best performance of others, but it enables you to learn how the performance is achieved. The ultimate objective of process benchmarking is to propel performance improvement by learning and adapting the processes used by a firm who has achieve 'best in class' performance in a key activity" (24).

What are the two components of core ideology?

1. Core values 2. Purpose

What are the five steps of the GAP Analysis methodology and on what should planning solutions be focused on?

-Planning solutions with GAP analysis should be focused on the ideal state rather than just incremental change. GAP Analysis: 1. Define desired state 2. Define current state 3. Identity gaps 4. Analyze root cause 5. Plan solutions

What are the primary management strategies that relate to each of the four categories of the BCG Growth-Share Matrix?

1. Cash Cow: High market share, Low growth rate 2. Dog: Low market share, Low growth rate 3. Star: High market share, High growth rate 4. Question Mark: Low market share, High growth rate

What are four key principles related to strategy formulation?

1. Changes in any one component will affect other components. Creating a change in one area may affect the resources available in another. 2. The formulation and implementation of strategies are sequential. It is not wise to have a "ready, fire, aim" approach to strategic management. You must aim then fire. 3. A systematic feedback system process is necessary to evaluate the effectiveness of strategies. Strategy formulation includes identifying measurable outcomes and routine processes for the outcome data and related measurements to be gathered, analyzed, and acted on. 4. Strategy formulation is dynamic, involving constant changes. You don't develop a plan and then ignore the fact that the conditions in which you created it may be changing.

Be able to discern the difference between concentrated growth, market development, product development, and innovation as grand strategies.

1. Concentrated growth- focus on the profitable growth of a single product or products in a single market using a core capability that provides a competitive advantage. Least costly and lowest risk. (ex. Pg. 30) 2. Market development- focus on marketing present products in new markets. Second least costly and risky (ex. Pg. 30) 3. Product development- develop new product for present markets. (ex. Pg. 30) 4. Innovation- Creates a new product life cycle, thereby making similar existing products obsolete. Made under assumption that consumer and business markets are expecting new features and uses of products and services.

What are three primary generic strategies that single or dominant product businesses can choose to create a sustainable competitive advantage (SCA)?

1. Cost Leadership 2. Differentiation 3. Speed/Rapid Response to Customers' Requests

What do the letters stand for in the problem solving methodology often associated with Six Sigma called DMAIC? (fill in blanks)

1. Define 2. Measure 3. Analyze 4. Improve 5. Control

What is the difference between divestiture, liquidation, and bankruptcy strategies?

1. Divesture: Involves the sale of the firm or one of its major components. Occasionally forced by government anti-trust action 2. Liquidation: The firm voluntarily sells its tangible assets for their value rather than selling the firm or business unit as a going concern. Admission of failure by company. 3. Bankruptcy: The firm involuntarily sells assets due to creditor threat or when liabilities exceed asset value. Liquidation bankruptcy refers to a company's agreement to a court's sanctioned distribution of assets to creditors. Reorganization bankruptcy involves court approval to restructure debts and continue business to attempt a turnaround.

What are the two primary groups of customers and how would you define each?

1. Internal customer-anyone to whom work is handed off to within an organization. 2. External customer-the ultimate user of the product or service, the one who makes the purchase decision.

What are the four primary types of strategic control and how is each used?

1. Premise control - used to systematically assess whether the assumptions and predictions used in developing a strategy are still valid. 2. Strategic Surveillance - a control and environmental scanning process that collects information from a broad range of key events inside and outside the firm that are likely to affect the course of its strategy. 3. Special Alert Control - a control process that triggers a thorough and rapid review and change of strategies in response to sudden, unexpected events that affect the strategy direction. 4. Implementation Control - monitors the incremental effect of implementing action plans and tactics and/or the review of specific milestones during implementation to determine if the overall strategy should be changed.

What is the difference between the primary activities and support activities of a VCA?

1. Primary activities create the physical product or service. They begin with the inputs a firm receives and finish with firm's products or services and after-sales service to customers. 2. Support activities provide the infrastructure that allows the primary activities to take place on an ongoing basis." (pages 21-22)

What four things does "speed/rapid response to customers' requests" require?

1. Provide current products quicker 2. Accelerate new product development or improvement 3. Quickly adjust production processes 4. Make decisions quickly.

What is the difference between root cause, apparent cause, and symptoms of problems?

1. Root cause - the most basic reason why a problem or undesirable condition occurs. 2. Apparent cause - immediate or obvious problem. Must be determined by analysis not speculations. 3. Symptoms - tangible evidence or conditions indicating that something is wrong.

What are the two newest issues that are increasingly being considered in the development and revision of mission statements?

1. Sensitivity to customer wants (making the customer the top priority) 2. Concern for quality (e.g. quality and safety are job number one)

What are the five key steps of an effective operational control system?

1. Set standards of performance. 2. Develop systematic processes and policies to achieve the standards. 3. Measure actual performance resulting from the processes. 4. Compare actual performance to standards and identify unacceptable deviations. 5. Initiative corrective action (adjust process and policy, etc.).

What are the two broad categories of business problems and how do they differ?

1. Strategic Problems - cause gaps between current performance and organizational goals. They relate to functions of management: planning, organizing, directing, and controlling. 2. Process Problems - problems in the procedure or the way work is done.

What is the difference between the intangible and tangible assets of an organization? Give examples of intangible assets.

1. Tangible Assets - measurable, physical assets -Found on the firm's balance sheet -The value of measurable assets such as property and equipment -The current value of other measurable assets such as cash and securities, accounts receivable, and inventory 2. Intangible assets - measurable, non-physical assets such as property and equipment -Measurable, non-physical assets that may appear on the firm's balance sheet such as patents, goodwill, and copyrights -Assets which are not quantifiable such as economies of scale, trade secrets, key employees, brand equity, distribution system, quality culture, employee morale, favorable reputation

What are long-term objectives?

1. The results a firm seeks over a multi-year period of time (Usually 3-5) that often address the following key strategic issues and success factors: What Profitability, Productivity, Competitive position, Employee development, Employee relations, Technological leadership, Public responsibility. 2. Should shape future direction and have the qualities of being: 1. Measurable 2. Achievable 3. Motivating 4. Flexible 3. Must create a balance in decisions regarding the key perspectives: Financial, Customer, Learning and growth.

What is a simple definition of quality?

A simple definition of quality is meeting and exceeding the expectations of the customer

Be able to look at a list and discern whether the items are a key success factor, BHAG, or strategy.

Answered by the bold words in 1, 2, and 3

What is a geographic organizational structure, what kind of firms predominantly use it, and what is the key strategic advantage of this structure?

Are firms organized by geographic regions that have unique characteristics. This is dominant in that is has multiple operating units across several regions. but sometimes it may not include all the functional support services.

Which performance improvement model is sponsored by the U. S. Government?

Baldridge National Quality Program

The first of Deming's 14 points is constancy of purpose. How did this help define the role of a company?

Dr. Deming taught that, rather than making money (short term focus), a company's role was to stay in business and provide jobs through innovation, research, constant improvement of product and service, and investing in maintenance and new aids to production or service delivery (long term focus).

What are economies of scale?

Economies of Scale are savings achieved through the ability to make large volume purchases

What is a matrix organization, what kinds of firms use it, what is the key strategic advantage, and what is the key strategic disadvantage of this type of structure?

It provides dual channels of authority, performance, responsibility, evaluation and control. It is used by firms to focus on long term product and project initiatives of strategic significance. EX. development of a new product like an airplane or satellite. Advantage is that it accommodates a wide variety of project oriented business activity. Disadvantage is that it is difficult to implement because it necessitates tremendous horizontal and vertical coordination.

What are the organizational capabilities of a firm and why are they important?

Organizational Capabilities - Ability to combine assets, people, and processes Used to transform inputs into outputs in a productive and efficient ways that competitors cannot imitate easily

What is outsourcing?

Outsourcing is contracting work previously done by employees inside a company from sources outside the company.

How is stockholder value ultimately enhanced in a diversified company?

When the company is able to share skills and core competencies across multiple businesses to: -Strengthen value chains -Build competitive advantage

What is the definition of strategic management

is the formulation and implementation of plans designed to achieve an organization's mission and objectives. The process of creating these plans and actions must be deliberate, systematic, and sustainable over time.