Strategic Management (Chp. 1-4)
Eisner's Theory
"People will pay a premium price for extraordinary entertainment. We have the necessary resources to create extraordinary entertainment. Therefore, let's redeploy our resources in a different way and offer something extraordinary to people."
VRIO Framework
***NEVER USE ON THE ENTIRE FIRM*** use on individual resources
Ten Benefits of Having a Clear Mission and Vision
1. Achieve clarity of purpose among all managers and employees 2. Provide a basis for all other strategic planning activities 3. Provide direction 4. Provide a focal point for all stakeholders of the firm 5. Resolve divergent views among managers 6. Promote a sense of shared expectations among all managers and employees 7. Project a sense of worth and intent to all stakeholders 8. Project an organized, motivated organization worthy of support 9. Achieve higher organizational performance 10. Achieve synergy among all managers and employees
Marketing Audit Checklist of Questions
1. Are markets segmented effectively? 2. Is the organization positioned well among competitors? 3. Has the firm's market share been increasing? 4. Are present channels of distribution reliable and cost effective? 5. Does the firm have an effective sales organization? 6. Does the firm conduct market research? 7. Are product quality and customer service good? 8. Are the firm's products and services priced appropriately? 9. Does the firm have an effective promotion, advertising, and publicity strategy? 10. Are marketing, planning, and budgeting effective? 11. Do the firm's marketing managers have adequate experience and training? 12. Is the firm's Internet presence excellent as compared to rivals?
Finance & Accounting Limitations
1. Based on accounting data 2. Seasonal factors 3. Variation from industry avg. (why?) 4. Not actionable (firm vs specific r&c)
Characteristics of a Mission Statement
1. Customers - who are the firm's customers 2. Products or Services - what are the firm's major p/s 3. Markets - where does the firm compete 4. Technology - is the firm tech current 5. Concern for Survival and Growth - committed to growth and financial soundness 6. Philosophy - firm beliefs, values, ethics 7. Self-Concept - distinctive competency 8. Concern for Public Image - firm responsive to social, community, and environmental concerns 9. Concern for Employees - are employees a valued asset
Management Audit Checklist of Questions
1. Does the firm use strategic-management concepts? 2. Are company objectives and goals measurable and well communicated? 3. Do managers at all hierarchical levels plan effectively? 4. Do managers delegate authority well? 5. Is the organization's structure appropriate? 6. Are job descriptions and job specifications clear? 7. Is employee morale high? 8. Are employee turnover and absenteeism low? 9. Are organizational reward and control mechanisms effective?
EFE Matrix Steps
1. List 20 key external factors 2. Weight from 0.0 to 1.0 3. Rate effectiveness of current strategies 1-4 4. Multiply weight * rating 5. Sum weighted scores
External Audit Process
1. Process must involve as many managers and employees as possible. 2. Gather competitive intelligence and information on the 10 external factors. 3. Information assimilation, evaluation, and prioritization. 1) Select key variables. 2) Tools & Techniques 4. Distribute information throughout organization
Organizational Culture Caution:
1. Strong culture (beliefs) may result in missing external changes taking place 2. Effective culture in the past may lead to resistance to change
The functions of finance/accounting
1. The investment decision - the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization 2. The financing decision - determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital 3. The dividend decision - concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time, and the repurchase or issuance of stock - determine the amount of funds that are retained in a firm compared to the amount paid out to stockholders
RBV (Resource Based View) - VRIO
1. Value: = firm capabilities allow for firm to take advantage of opportunities and minimize threats (revenues > costs) 2. Rare: = how many other firms already possess particular valuable resources and capabilities? 3. Imitability = firms without a resource or capability face a cost disadvantage in obtaining or developing such resources/capabilities compared to firms possessing the resources and capabilities (historical conditions, causal ambiguity, social complexity, patents) 4. Organization = does the firm exploit (take advantage of) the resources and capabilities
Organizational culture
= "a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaptation and internal integration and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel." Organizational culture significantly affects planning activities. If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes. (p. 102)
Production/operations function
= consists of all those activities that transform inputs into goods and services deals with inputs, transformations, and outputs that vary across industries and markets.
Marketing
= the process of defining, anticipating, creating, and fulfilling customers' needs and wants for products and services - Customer analysis (trends) - Selling products and services (promotions) - Product and service planning (test marketing) - Pricing (transparency = intense competition) - Distribution (intermediaries) - Marketing research (CA) - Cost/ benefit analysis
Benefits of Strategic Management
Allows Firm to Influence, Initiate, and Anticipate Be Proactive Rather Than Reactive Improved communication Increased Understanding Enhanced Commitment Greater Financial Performance More Effective Strategies Higher Productivity
Vision Statement
Answer core question ◦ "What do we want to become?" Acts as a foundation for the mission statement Characteristics: ◦Short (one sentence) ◦Created with input from as many managers as possible ◦Reveal the type of business the firm engages
Mission Statement
Answer core question ◦"What is our business?" Declares "reason for being" Identifying statement, separates organization from others Reveals what an organization wants to be and whom it wants to serve (establishing objectives and formulating strategies)
Competitive Intelligence Programs
Competitive intelligence (CI) = a systematic and ethical process for gathering and analyzing information about the competition's activities and general business trends to further a business's own goals The three basic objectives: 1. To provide a general understanding of an industry and its competitors 2. To identify areas in which competitors are vulnerable 3. To identify potential moves that a competitor might make that would endanger a firm's position in the market
Strategy Evaluation
Determining which strategies are not working well Three fundamental activities: - reviewing external and internal factors that are the bases for current strategies - measuring performance - taking corrective actions
Gaining Competitive Advantage
Distinctive competencies: - A firm's strengths that cannot be easily matched or imitated by competitors - Building competitive advantages involves taking advantage of distinctive competencies The Resource-Based View (RBV) Approach - contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage
Key External Forces (Trends)
Economic Social, Cultural, and Natural Environment Demographic Political, Governmental, and Legal Technological Competitive
RBV (Resource Based View) - Theory
For a resource to be valuable it must generate revenue or contribute to cost savings. To enhance a resource's vaule it must follow the Empirical Indicators 1) rare 2) difficult to imitate 3) non substitutable. These enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage.***
Relationship Between Key External Forces and an Organization
Google chart up
Industry Analysis: Competitive Profile Matrix (CPM)
Identifies firm's major competitors and their strengths & weaknesses in relation to a sample firm's strategic positions Critical success factors include internal and external issues
External Information problems for Strategists
Information overload Rapid pace of change Human tendency towards simplification
What Does Internal Analysis Tell Us?
Internal analysis provides a comparative look at a firm's capabilities what are the firm's strengths? what are the firm's weaknesses? how do these strengths & weaknesses compare to competitors?
Effective Strategic Management
Intuition + Analysis Adapting to Change Business Ethics: = principles of conduct within organizations that guide decision making and behavior.
Strategic management model
LOOK AT POWERPOINT!!! Where are we now? Where do we want to go? How are we going to get there?
Obtaining CI
Legal and ethical ways to obtain competitive intelligence: 1. Reverse-engineer rival firms' products. 2. Use surveys and interviews of customers, suppliers, and distributors of rival firms. 3. Analyze rival firm's Form 10-K. 4. Conduct fly-over and drive-by visits to rival firm operations. 5. Search online databases. 6. Contact government agencies for public information about rival firms. 7. Monitor relevant trade publications, magazines, and newspapers. 8. Purchase social-media data about customers of all firms in the industry. 9. Hire top executives from rival firms.
Porter's Five Forces Model
Look at CHP. 3 Notes Focal Point <-- Industry Threat <-- Entry, Rivalry, Substitutes, Suppliers, Buyers Higher Threat ---> Lower Average Profit If all threats are high ---> expect normal profits If all threats are low ---> expect above normal profits
Implications of Various Strategies on Production/Operations
Look on Chp. 4 Slide 14
External Audit: Tools and Techniques
Porter's Five Forces Forecasting Industry Analysis: External Factor Evaluation (EFE) Matrix The Competitive Profile Matrix (CPM)
Threat of Suppliers
Powerful suppliers can "squeeze" (lower profits) from the firm
RBV (Resource Based View) Categories
Proponents of the RBV contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories: - physical resources - human resources - organizational resources ASSUMPTIONS: 1.Firms differ in competencies 2.Competencies do not move well (firm to firm)
Finance & Accounting
Ratios: - Liquidity - Leverage - Activity - Profitability - Growth 1. How has each ratio changed over time? 2. How does each ratio compare to industry norms? 3. How does each ratio compare with key competitors?
RBV - Resources and Capabilities
Resources: - tangible and intangible assets of a firm (tangible: factories, products intangible: reputation) - used to conceive of and implement strategies Capabilities: - a subset of resources that enable a firm to take full advantage of other resources (marketing skill, cooperative relationships)
Approach to Developing Vision and Mission Statements
Select several articles prepare a vision and mission statement merge these statements A request for modifications
Historical Conditions
The ability to develop unique resources often depends on the time and place in which the business began operations.
Why are Vision and Mission Statements are Important?
To make sure all employees/managers understand the firm's purpose or reason for being. To provide a basis for ... - prioritization of key internal and external factors - allocation of resources. - organizing work, departments, activities, and segments
AQCD Test
When identifying and prioritizing key external factors in strategic planning, the following 4 factors are important: Actionable Quantitative Comparative Divisional The AQCD is a measure of the quality of an external factor.
strategy
a plan of action or policy designed to achieve a major or overall aim.
Strategic Management
a process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals
economies of scale
a proportionate saving in costs gained by an increased level of production.
Forecasting
are educated assumptions about future trends and events - Data analytics - Assumptions
strategy formulation
developing a vision and mission identifying an organization's external opportunities and threats determining internal strengths and weaknesses establishing long-term objectives generating alternative strategies choosing particular strategies to pursue
Barriers to Entry
economies of scale—firm that can't produce the minimum efficient scale will be at a disadvantage product differentiation—entrants are forced to overcome customer loyalties to existing products cost advantages independent of scale—incumbents may have learning advantages, etc. government policies—governments may impose trade restrictions and/or grant monopolies
Multipoint Competition
exists when two or more diversified firms simultaneously compete in the same product areas or geographical markets
External Audit
focuses on identifying and evaluating trends and events beyond the control of a single firm reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats
Threat of Rivalry (most impactful variable)***
high rivalry means firms compete vigorously—and compete away above average profits
CPM Matrix
identifies a firm's major competitors and their particular strengths and weaknesses in relation to a sample firm's strategic position
Threat of Entry (new competitors)
if firms can easily enter the industry, any above normal profits will be bid away quickly barriers to entry lower the threat of entry barriers to entry make an industry more attractive - this is true whether the focal firm is already in the industry or thinking about entering
Industry conditions that facilitate rivalry:
large numbers of competitors slow or declining growth high fixed costs and/or high storage costs low product differentiation industry capacity added in large increments
Patents
licenses that give an inventor the exclusive right to make, use, or sell an invention for a set period of time
Strategic Planning
pitfalls and lack of engagement
Five Functions of Management
planning, organizing, staffing, leading, controlling
Threat of Buyers (consumers)
powerful buyers can 'squeeze' (lower profits) the focal firm by demanding lower prices and/or higher levels of quality and service
Strategy Implementation
requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed often called the action stage
Industry conditions that facilitate buyer power
small number of buyers for focal firm's output lack of a differentiated product the product is significant to the buyer buyers operate in a competitive market—they are not earning above normal profits buyers can vertically integrate backwards many small buyers can be united around an issue to act as a block***
Industry conditions that facilitate supplier power
small number of firms in supplier's industry highly differentiated product lack of close substitutes for suppliers' products supplier could integrate forward focal firm is an insignificant customer of supplier
Core Value Statement
specifies a firm's commitment to integrity, fairness, discipline, equal employment opportunity, teamwork, accountability, continuous improvement, or other such exemplary attributes.
3 Stages of Strategic Management
strategy formulation strategy implementation strategy evaluation
Threat of Substitutes
substitutes fill the same need but in a different way - exp. Coke and Pepsi are rivals, milk is a substitute for both substitutes create a price ceiling because consumers switch to the substitute if prices rise substitutes will likely come from outside the industry—be sure to look
EFE Matrix
summary of external forces and their impact/importance to the firm
Sustained Competitive Advantage:
the ability to create more economic value than competitors over a sustained period of time (5 years +)
casual ambiguity
the difficulty of identifying the actual cause of a firm's successful performance
Social Capability
the social and cultural qualities that allow a country to take advantage of economic opportunities
competitive advantage
•the ability to create more economic value than competitors •Above average profits