Business Policy Chapter 1

A mission statement has four main components:

1. A statement of the raison d'être of a company or organization—its reason for existence—which is normally referred to as the mission 2. A statement of some desired future state, usually referred to as the vision 3. A statement of the key values that the organization is committed to 4. A statement of major goals

Chapter Summary Pt. 1

1. A strategy is an action that a company takes to attain one or more of its goals. 2. A company has a competitive advantage over its rivals when it is more profitable than the average for all firms in its industry. It has a sustained competitive advantage when it is able to maintain above-average profitability over a number of years. In general, a company with a competitive advantage will grow its profits more rapidly than rivals. 3. General managers are responsible for the overall performance of the organization or for one of its major self-contained divisions. Their overriding strategic concern is for the health of the total organization under their direction.

Three main levels of strategic management:

1. Corporate-- CEO, board of directors, and corporate staff 2. Business-- Divisional managers and staff 3. Functional-- Functional managers General managers are found at the first two of these levels, but their strategic roles differ depending on their sphere of responsibility.

Steps to form a strategic plan:

1. SWOT 2. Strategic Direction 3. Formulate Strategy 4. Strategy Implementation 5. Strategic Restructuring

Strategy Formulation

Analyzing the organization's external and internal environments and then selecting appropriate strategies.

Emergent Strategy

Organizations learn as they go, by trial and error-- Don't need to plan 5 years ahead, just adapt if needed and keep your current strategy.

Emotional intelligence

1. Self-awareness—the ability to understand one's own moods, emotions, and drives, as well as their effect on others 2. Self-regulation—the ability to control or redirect disruptive impulses or moods, that is, to think before acting 3. Motivation—a passion for work that goes beyond money or status and a propensity to pursue goals with energy and persistence 4. Empathy—understanding the feelings and viewpoints of subordinates and taking those into account when making decisions 5. Social skills—friendliness with a purpose

A Model of the Strategic Planning Process The formal strategic planning process has five main steps:

1.Select the corporate mission and major corporate goals. 2. Analyze the organization's external competitive environment to identify opportunities and threats. 3. Analyze the organization's internal operating environment to identify the organization's strengths and weaknesses. 4. Select strategies that build on the organization's strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats. These strategies should be consistent with the mission and major goals of the organization. They should be congruent and constitute a viable business model. 5. Implement the strategies.

Chapter Summary Pt. 2

4. Functional managers are responsible for a particular business function or operation. Although they lack general management responsibilities, they play a very important strategic role. 5. Formal strategic planning models stress that an organization's strategy is the outcome of a rational planning process. The major compo- nents of the strategic management process are defining the mission, vision, and major goals of the organization; analyzing the external and internal environments of the organization; choosing strategies that align or fit an organization's strengths and weaknesses with external environ- mental opportunities and threats; and adopting organizational structures and control systems to implement the organization's chosen strategy.

Chapter Summary Pt. 3

6. Strategy can emerge from deep within an organization in the absence of formal plans as lower-level managers respond to unpredicted situations. 7. Strategic planning often fails because executives do not plan for uncertainty and because ivory- tower planners lose touch with operating realities. 8. The fit approach to strategic planning has been criticized for focusing too much on the degree of fit between existing resources and current opportunities, and not enough on building new resources and capabilities to create and exploit future opportunities.

Chapter Summary Pt. 4

9. Strategic intent refers to an obsession with achieving an objective that stretches the com- pany and requires it to build new resources and capabilities. 10. In spite of systematic planning, companies may adopt poor strategies if their decision- making processes are vulnerable, if individual cognitive biases are allowed to intrude into the decision-making process. 11. Devil's advocacy, dialectic inquiry, and the outside view are techniques for enhancing the effectiveness of strategic decision making. 12. Good leaders of the strategy-making process have a number of key attributes: vision, eloquence, and consistency; commitment; being well informed; a willingness to delegate and empower; political astuteness; and emotional intelligence.

Business-Level Managers

A business unit is a self-contained division (with its own functions—for example, finance, purchasing, production, and marketing departments) that provides a product or service for a particular market. The principal general manager at the business level, or the business-level manager, is the head of the division. The strategic role of these managers is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses.

Representativeness

A cognitive bias rooted in the tendency to generalize from a small sample or even a single vivid anecdote.

Illusion of Control

A cognitive bias rooted in the tendency to overestimate one's ability to control events.

Reasoning by Analogy

A cognitive bias that involves the use of simple analogies to make sense out of complex problems.

Escalating Commitment

A cognitive bias that occurs when decision makers, having already committed significant resources to a project, commit even more resources after receiving feedback that the project is failing.

Prior Hypothesis Bias

A cognitive bias that occurs when decision-makers who have strong prior beliefs tend to make decisions on the basis of these beliefs, even when presented with evidence that their beliefs are wrong.

Multidivisional Company

A company that competes in several different businesses and has created a separate, self-contained division to manage each of them.

Business Unit

A self-contained division that provides a product or service for a particular market.

Strategy

A set of actions that managers take to increase their company's performance relative to rivals.

Devil's Advocacy

A technique in which one member of a decision-making group acts as a devil's advocate, bringing out all the considerations that might make the proposal unacceptable.

Autonomous Action

Action taken by lower-level managers who, on their own initiative, formulate new strategies and work to persuade top-level managers to alter the strategic priorities of a company

Global strategy

Addressing how to expand operations outside the home country to grow and prosper in a world where competitive advantage is determined at a global level.

Functional-level strategy

Directed at improving the effectiveness of operations within a company, such as manufacturing, marketing, materials management, product development, and customer service.

Cognitive Biases Systematic

Errors in human decision making that arise from the way people process information.

Resource-Based View

Firms are bundles of resources that must be coupled with dynamic capabilities to realize competitive advantage, or a sustained competitive advantage.

Enactment strategy

Firms, entrepreneurs and executives can, in part, create their environments- the essence of strategy

Corporate Level Managers

Includes: chief executive officer (CEO), other senior executives, the board of directors, and corporate staff. These individuals occupy the apex of decision making within the organization. The CEO is the principal general manager. In consultation with other senior executives, the role of corporate-level managers is to oversee the development of strategies for the whole organization. This role includes defining the goals of the organization, determining what businesses it should be in, allocating resources among the different businesses, formulating and implementing strategies that span individual businesses, and providing leadership for the entire organization.

Strategy Implementation

Involves putting the strategies (or plans) into action. This includes taking actions consistent with the selected strategies of the company at the corporate, business, and functional level, allocating roles and responsibilities among managers (typically through the design of organization structure), allocating resources (including capital and people), setting short-term objectives, and design- ing the organization's control and reward systems.

Functional Managers

Managers responsible for supervising a particular function—that is, a task, activity, or operation, like accounting, marketing, Research & Development, information technology, or logistics.

General Managers

Managers who bear responsibility for the overall performance of the company or for that of one of its major self- contained subunits or divisions.

Stakeholder Approach

Pleasing everyone results in a high performing firm. *Assumptions-- 1. You'll know who your stakeholders are. Identify them. 2. We have the understanding of stakeholders needs and desires.

Strategy Implementation

Putting strategies into action.

Functional-Level Managers

Responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, etc.) that constitute a company or one of its divisions. Functional manager's sphere of responsibility is generally confined to one organizational activity, whereas general managers oversee the operation of a whole company or division. Although they are not responsible for the overall performance of the organization, functional managers nevertheless have a major strategic role: to develop functional strategies in their area that help fulfill the strategic objectives set by business- and corporate-level general managers.

Emergent strategies

Strategies that "emerge" in the absence of planning. The unplanned responses to unforeseen circumstances. They arise from autonomous action by individual managers deep within the organization, from serendipitous discoveries or events, or from an unplanned strategic shift by top-level managers in response to changed circumstances.

The task of analyzing the organization's external and internal environment and then selecting appropriate strategies is known as

Strategy Formulation

Competitive Advantage

The advantage over rivals achieved when a company's profitability is greater than the average profitability of all firms in its industry.

Environmental Determinism

The best strategy involves adapting to environmental, technical, and human forces; take what the industry allows. ex) farmers, "price takers"

Sustained Competitive Advantage

The competitive advantage achieved when a company is able to maintain above- average profitability for a number of years. EX) Companies like Walmart, Southwest, and Dell Computers have had a significant and sustained competitive advantage because they have pursued firm-specific strategies that result in superior performance.

Mission Statement

The first component of the strategic management process is crafting the organization's mission statement, which provides the framework or context within which strategies are formulated.

Dialectic Inquiry

The generation of a plan (a thesis) and a counterplan (an antithesis) that reflect plausible but conflicting courses of action.

SWOT Analysis

The next component of strategic thinking requires the generation of a series of strategic alternatives, or choices of future strategies to pursue, given the company's internal strengths and weaknesses and its external opportunities and threats.

Profitability

The return that a company makes on the capital invested in the enterprise.

External Analysis

The second component of the strategic management process is an analysis of the organization's external operating environment. The essential purpose of the external analysis is to identify strategic opportunities and threats in the organization's operating environment that will affect how it pursues its mission. Three interrelated environments should be examined at this stage: the industry environment in which the company operates the country or national environment the wider socioeconomic or macro-environment.

Internal Analysis

Third component of the strategic planning process, serves to pinpoint the strengths and weaknesses of the organization. Such issues as identifying the quantity and quality of a company's resources and capabilities and ways of building unique skills and company-specific or distinctive competencies are considered here when we probe the sources of competitive advantage. Building and sustaining a competitive advantage requires a company to achieve superior efficiency, quality, innovation, and responsiveness to its customers.

Strategy is a process

True

Superior Performance

Typically thought of in terms of one company's profitability relative to that of other companies in the same or a similar kind of business or industry.

Corporate-level strategy

Which answers the primary questions: What business or businesses should we be in to maximize the long-run profitability and profit growth of the organization, and how should we enter and increase our presence in these businesses to gain a competitive advantage?

Business-level strategy

Which encompasses the business's overall competitive theme, the way it positions itself in the marketplace to gain a competitive advantage, and the different positioning strategies that can be used in different industry settings—for example, cost leadership, differentiation, focusing on a particular niche or segment of the industry, or some combination of these.

Scenario Planning Formulating

plans that are based on "what if" scenarios about the future.