SBI midterm- Policy

types of Organization Structures

Functional Product Geographic Matrix Cellular

Characteristics of the Org. Structure

Grouping of workers Assignment of responsibilities Vertical / horizontal span Formal and informal structure

3 ways to build a value proposition

"Price (Direct, Indirect) "Features (Tangible, Intangible) "Execution (Availability, Reliability, Intensity)

management preferences

(1)Positive: potential enable capabilities -motivate development of business capabilities (2)Negative: constrain capabilities -can result in opportunistic behavior of managers Data collection: gather info on recent management (statements made by leadership about firm, transcripts of meetings, public press, etc) Conclusion: Seek out "frozen preferences"

Three types of management processes can be altered to develop new capabilities:

- Management's decision making processes -Operating processes -Performance assessment & reward system processes.

Drivers of Change

-Determine how firms currently operate and compete in that that industry -Shape how firms operate and compete in that industry in the future -EX. changes is cost & efficiency, service innovation, product innovation,government policy, etc.

Assessing "Overall Attractiveness of the Environment for Future Investment" includes:

-Financial Attractiveness: Industry profitability, Level of investment, Risk -Market Attractiveness:Market (product) growth potential, Concentration ratio (e.g., 4‐firm con. ratio)

Resources are NOT capabilities

-Firms *use resources* to create capabilities -resources (assets) do not create value, capabilities do -any firm can accumulate resources, configuring assets into unique business capabilities that create value proposition for organizaton

components of business strategy

-Goals _product & market focus (strategic orientation) -value proposition (strategic orientation)

assess strategic consistency fit (CLOSING GAPS)

-Is the firm's strategy consistent (appropriately aligned) with the environment of the firm? -Is the firm's strategy consistent (appropriately aligned) with the capabilities of the firm

when analyzing the environment, what tools do you use to collect data?

-P.E.S.T Analysis -the 5 force analysis

P.E.S.T stands for:

-Political -Economic -Social -technological

After comparing firm performance with industry performance you make conclusions about:

-The financial position of the firm -The profitability of the firm -The market performance of the firm -The organizational health of the firm

each organizational capability arises from the combination of 3 components

-management preferences -firm resources -organizing processes

Components of organizational performance include:

-operating performance:financial(profit &financial position) & market -organizational health

Type of firm resources

-physical -human -relationship & reputation -financial

firm resources provide the potential to act

-resource adequately is relative to the demands of the strategy of the firm -certain resources are more or less easy to adapt to meet changing -some resources are more or less transferable to new application

outputs of environmental analysis MUST include

1. key drivers of change (DOC) 2. key survival factors (KSF) for ANY firm in "environment" 3. Assess overall attractiveness of the environment for future investment

Components Of The SBI Process

1: Analyze the environment and status of the firm: Deconstruct and understanding the firm and its environment 2: Assess strategic fit and formulate new strategy :Assess fit and propose possible solutions 3: Develop an implementation plan and confirm financial viability of the proposal: -Develop the implementation plan -Develop the rollout & conduct a viability analysis

In Part-2B of the SBI process we should develop _____ strategic proposals for the client

2

business strategy

A concrete expression of how an organization intends to compete and win in the marketplace

Which of the following is the best description of a vision statement?

A statement of what the firm will be in the future

which of the following is true based on the criterion of consistency framework?

A. high consistency among the elements of the framework will lead to successful firm performance

Which of the following is a necessary condition for the new strategy to provide a risk-adjusted ROI that is better than their current ROI?

Adjusted for cost, the new strategy must result in an improved competitive advantage for the firm

assessing firm resources

Data Collection: -use all available data sources to collect info about the resources of firm in terms of capabilities Organization and Analysis -Identify resource availability in each category (marketing, operations, HR, corp. reputation, etc)

High barriers to entry and high threat of retaliation by firms in industry ____________the threat f new entrants and make the industry________profitable

Decrease, more

The 5‐Forces Model:

Five forces that determine profitability/ attractiveness of the competitive environment. • Competitive Rivalry • Threat of New Entrants • Supplier Power • Buyer Power • The Threat of Substitute Products

key survival factors

Key Survival Factors are "must haves." These are areas where any firm, in an industry sector, must demonstrate competencies in order to survive

assessing the current business strategy of firm includes:

Linking Mission & vision with the business strategy of firm

Which of the following represent a lever that can be used to create and/or enable changes in organizational capabilities

Management process

3 types of capabilities

Operational capabilities: -internally focused capabilities to purposely combine "functional" resources and support cooperation across functional areas Customer Capabilities -used to (1) respond to customer needs and (2) shape firm reputation Innovation Capabilities: -used to create innovative products/services that (1) perceived as valuable by the customer and (2) create competitive advantage

identify 3 C-S gaps through:

Product/market focus<->operational, customer, innovation capabilities Value proposition<-> operational, customer, innovation capabilities

Which of the following capabilities would be most difficult for competitors to copy?

R & D processes that allow for ongoing innovation

The rule that I would use to select the top business capabilities of an organization is:

Select the ones that maximize long-term performance (i.e., shareholder wealth) of the firm

Business Strategy: Value Proposition

Specifies the fundamental benefits/customer‐value "offered" by the firm to win orders in the marketplace It answers questions: ◦ How do we intend to win orders in the market‐ place? ◦ What do we offer that is better than that of our competitors? called "competitive advantage", or "Key success factors": (NOT, key survival factors) *Concentrates on what is important to the customer*

business strategy: Product-Market focus:

Spells out the range of: 1. products/services offered, and 2. markets served ◦ PF: Range: Measured as the number of the firm's products, relative to total number of products offered by all firms in industry ◦ MF: Range: Measured as the number of market segments that the firm is actively involved in, relative to total number of market segments that exist

Ideally, a firm would like to compete in an industry that has

Strong buyers and strong suppliers

how do we analysis the environment?

The 3‐step analytical process 1. Collect Data 2. Organize and Analyze the Data 3. Make Recommendations

The ability of firms to charge premium pricing is more severely limited when:

The are few, if any, real differences between the offerings of rival companies

I doing your competitive analysis, on an industry you noticed that the industry is fragmented (there are 20 firms similar in size to your firm), the industry has experienced zero to negative growth in the past 3 years and industry's products are mostly in the mature phases of their product life cycle. you conclude that:

The competitive rivarly is high

In working through Part-2A and 2B of the SBI process it is best to first focus on:

The inconsistencies between the firm's current strategy and changes in the environment, before focusing on potential gaps between the firm's strategy and its capabilities

Assume that there are many strategic options available to a firm that is flush with funds (e.g. Apple). What would be an appropriate benchmark that this firm should use when it invests some of its "mountain of cash" in a new strategy?

The new strategy must provide a long-term risk-adjusted ROI that is better than their current risk-adjusted ROI

The term "management preferences" refers to:

The preference of managers that impact decision making in a firm

The following is an example of a frozen preference:

The unwillingness or inability of a manager to alter his/her perspective on an issue

The criterion of consistency framework suggests that:

There must be a fit or alignment between a firm's environment, strategy, and capabilities

Components of organizing process

Three "process" used to create, employ, or change business capabilities -Organization structure -Management processes - Leadership behavior

goals of business strategy

Types of Goals -Hard Goals (Financial and Market Goals) ◦ Profitability/Financial Position ◦ Market Position/Growth/Risk -Soft Goals (Organizational Health Goals) ◦ Management ◦ Employee ◦ Community/Society ◦ What is to be achieved in a given period ◦ Each goal must have a time frame and magnitude

Valuable business capabilities arise out o

a careful and purposeful combination of V.R.I.O firm resources (assets) and organizing processes, that are preferred by management.

Financial ratio analysis can be used to

a. Compare the firm to other firms in the industry b. Compare current performance to past performance of the firm

8. Management processes that can/should be altered to construct new organizational capabilities include

a. Decision making processes b. Operating processes c. Performance assessment processes

The five forces analytic took suggest that the attractiveness of the competitive environment is a function of all the following except

a. Environment

Part-2A of the SBI process is focused on:

a. Evaluating potential inconsistencies or gaps between a firm's current strategy and the drivers of change and key survival factors in the firm's environment b. Evaluating potential inconsistencies or gaps between a firm's current strategy and its capabilities

The output of an industry analysis must include which of the following:

a. Identification of key survival factors in the industry b.Identification of drivers of change in the industry

The outputs of an environmental analysis should provide detailed descriptions of the___________ and the ____________ present in the environment

a. drivers of change, key survival factors

Improving the competitive advantage of the firm can be best achieved....

a.By using the new investments to judiciously close "internal strategic gaps," thereby improving the firm's ability to create value b.By using the investments to judiciously close "external strategic gaps," thereby ensuring that the value created by the firm more effectively addresses market needs

criterion of consistency framwork forms the basis for a comprehensive process of strategic analysis (SBI process). it is appropriate to use SBI process...

a.when current/ anticipated performance is poor b. on a periodic basis such as one a year or as determined by management c.when the business confronts a sudden perceived opportunity or threat

Key survival factors represents

areas where any firm in that industry sector must demonstrate competencies in order to survive

A firm's ability to use its resources to create goods and services for the customer is called a ______

capability

How does one create organizational capabilities?

combination of assets and hard to imitate organizing processes that are enabled and constrained by management

How do you analyze and organize the strength of forces in the competitive environment and the broad environment?

competitive: Identify most influential underlying forces that result in the power of the buyers & suppliers, rivalry among competitor firms, threat of new entrants, and threat of substitute products. Broad: Identify most influential underlying forces that present in each of the four components (P.E.S.T), then measure influence based on-industry change, key survival factors.

Capabilities of firm:

firm specific abilities (ability to innovate, understand customers) that enables the firm to achieve its desired strategic orientation and goals

The criterion of consistency

framework is a tool that can be used to match a firm's strategy and its capabilities with its environment, thereby improving its performance

"Where do we want to be in a year?" is the kind of question we ask when we are examining which of the following strategy components?

goals

identify 3 E-S gaps through:

industry attractiveness<->goals key survival factors<->Product/Market focus &Value proposition Key drivers of change<->Product/market focus & value proposition

1. An employee:

is an organizational resource

Managers from Fresh-Air Airlines use the 5-forces analysis to assess the airline's business capabilities. Is the 5-forces analysis the best tool for an assessment of Fresh-Air's capabilities?

no

"We manufacture high-end ladies shoes that are sold in boutique retail stores in the northeastern region of the United States," is an example of which component of the strategy of the firm?

product-market focus

Having well-articulated Mission and Vision statements is a necessary but not sufficient condition to complete the strategic business integration process

true

Managerial preferences impact the configuration of organizational capabilities

true

PEST is analysis of political, economic, social, technological forces that impact firm

true

potential gaps in the criterion of consistency framework must be constantly examined since firms operate in dynamic environments

true

7. The organizational chart displays how the people are grouped, and how responsibilities are assigned within the organization. This is known as the organizational _________

structure

Managers can optimize firm performance and shareholder's wealth by optmizing

the criterion of consistency

Supporting your conclusions with logical arguments, facts, and analysis is important

tru

"Product / market focus" is (1) a component of the strategy of the firm and (2) it addresses the products/services offered and the market segment targeted by the firm

true

A strategy is a carefully articulated description of how an organization intends to compete and win in the marketplace

true

identification of key survival factors in an industry allows my firm to....

understand the fundamental issues that ALL firms in the industry just address and what strategic approaches are possible

for capabilities to provide a competitive advantage they must have characteristics that include (VRIO):

valuable: -help exploit opportunities to create value to customers that neutralize threats i the environment Rare: -Capabilities that are possessed by few, potential competitors Inimitable: -capabilities that other firms cannot develop easily. Unique historical conditions, social complexity. Organizable -capabilities that the firm can organize around in order to exploit

"Why is someone going to buy our product?" is the kind of question we ask when we are examining which of the following strategy components?

value proposition

4. A firm earned a 12% Return on Assets (ROA) this past year, after averaging a 4% ROA over the past 3 years. The industry average stayed steady at 7%. Given this,

we cannot reach any conclusions without more information

When do firms change strategy?

• Annual review, 3-5 year strategic planning cycle, as needed

Why do firms change their strategy?

• To adapt to the changing environment • To adapt to competitor moves • To compete differently, thereby, hopefully, improving firm performance Overarching goal is to "maximize" long‐term shareholder wealth

the 5 force that determine profitability & attractiveness include:

◦ Competitive Rivalry ◦ Threat of New Entrants ◦ Supplier Power ◦ Buyer Power ◦ The Threat of Substitute Products