CAPSTONE

What is a vision statement?

Answers the basic question: what do we want to become? Should reveal the type of business the firm engages

Product positioning

Identifying target customers on which to focus marketing efforts. Positioning entails developing schematic representations that reflect how products or services compare to competitors' on dimensions most important to success in the industry. 1. select key criteria 2. product positioning map 3. plot major competitors 4. identify company's products are most competitive 5. develop marketing plan

Definition of a value chain.

Disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation.

What is an external audit?

Focuses on identifying and evaluating trends and evets 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

The 11 strategies; definition of and guidelines for each

Forward integration Def: gaining ownership or increase control over distributors or retailers Guidelines When an organization's present distributors are especially expensive, unreliable, or incapable of meeting the firm's distribution needs When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward When an organization competes in an industry that is growing and is expected to continue to grow markedly; this is a factor because forward integration reduces an organization's ability to diversity if its basic industry falters When an organization has both the capital and human resources needed to manage the new business of distributing its own products When the advantages of stable production are particularly high; this is a consideration because an organization can increase the predictability of the demand for its output through forward integration When present distributors or retailers have high profit margins; this situation suggests that company could profitably distribute its own products and price them more competitively by integrating forward Backward integration Def: seeking ownership or increased control of a firm's suppliers Guidelines When an organization's present suppliers are especially expensive, unreliable, or incapable of meeting the firm's need for parts, components, assemblies, or raw materials When the number of suppliers is small and the number of competitors is large When a n organization competes in an industry that is growing rapidly; this is a factor because integrative-type (forward, backward, and horizontal) reduce an organization's ability to diversify in a declining industry When an organization has both capital and human resources to manage the new business of supplying its own raw materials When the advantages of stable prices are particularly important; this is a factor because an organization can stabilize the cost of its raw materials and the associated price of its products through backward integration When present suppliers have high profit margins, which suggests the business of supplying products or services in the given industry is a worthwhile venture When an organization needs to quickly acquire a needed resource Horizontal integration Def: seeking ownership or increased control over competitors Guidelines When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the feral government for "tending substantially" to reduce competition When an organization competes in a growing industry When increased economies of scale provide major competitive advantages When an organization has both the capital and human talent needed to successfully manage an expanded organization When competitors are faltering as a result of a lack of managerial expertise or a need for particular resources that an organization possessed; note that horizontal integration would not be appropriate if competitors are doing poorly because in that case overall industry sales are declining Market penetration Def: seeking increased market share for present products or services in present markets through greater marketing efforts Guidelines When current markets are not saturated with a particular product or service When the usage rate of present customers could be increase significantly When the market shares of major competitors have been declining while total industry sales have been increasing When the correlation between dollar sales and dollar marketing expenditures historically have been high When increased economies of scale provide major competitive advantages Market development Def: introducing present products or services into new geographic area Guidelines When new channels of distribution are available that are reliable, inexpensive, and of good quality When an organization is successful at what it does When new untapped or unsaturated markets exist When an organization has the needed capital and human resource to manage expanded operations When an organization has excess production capacity When an organization's basic industry is rapidly becoming global in scope Product development Def: seeking increased sales by improving present products or services or developing new ones Guidelines When an organization has successful products that are in the maturity stage of the product life cycle; the idea here is to attract satisfied customers to try new (improved) products as a result of their positive experience with the organization's present products or services When an organization competes in an industry that is characterized by rapid technological developments When major competitors offer better quality products at comparable prices When an organization competes in a high growth industry When an organization has especially strong research and development capabilities Related diversification Def: adding new but related products or services Guidelines When an organization competes in a no growth or a sloth growth industry When adding new, but related, products would significantly enhance the sales of current products When new, but related, products could be offered at highly competitive prices When new, but related, products have seasonal sales levels that counterbalance and organization's existing peaks and valleys When an organization's products are currently in the declining stage of the product life cycle When an organization has a strong management team Unrelated diversification Def: adding new, unrelated products or services Guidelines When revenues derived from an organization's current products or services would increase significantly by adding the new, unrelated products When an organization competes in a highly competitive or a no growth industry as indicated by low industry profit margins and returns When an organization's present channels of distribution can be used to market the new products to current customers When the new products have countercyclical sales patterns compared to an organization's present products When an organization's basic industry is experiencing declining annual sales and profits When an organization has the capital and managerial talent needed to compete successfully in a new industry When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity When there exists financial synergy between the acquired and acquiring firm (key difference between related and unrelated diversification is that the former should be based on some commonality in markets, products, or technology, whereas the latter is based more on profit considerations) When existing markets for an organization's present products are saturated When antitrust action could be charged against an organization that historically has concentrated on a single industry Retrenchment Def: regrouping through cost and asset reduction to reverse declining sales and profit Guidelines When an organization has a clearly distinctive competence but has failed consistently to meet its objectives and goals over time When an organization is one of the weaker competitors in a given industry When an organization is plagued by inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance When an organization has failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses over time; that is, when the organization's strategic mangers have failed (and possibly all be replaced by more competent individuals) When an organization has grown so large so quickly that major internal reorganization is needed Divestiture Def: selling a division or part of an organization Guidelines When an organization has pursued a retrenchment strategy and failed to accomplish needed improvements When a division needs more resources to be competitive than the company can provide When a division is responsible for an organization's overall poor performance When a division is a misfit with the rest of an organization; this can result from radically different markets, customers, managers, employees, values, or needs When a large amount of cash is needed quickly ad cannot be obtained reasonable from other sources When government antitrust action threatens an organization Liquidation Def: selling all of a company's assets in parts, for their tangible worth Guidelines When an organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful When an organization's only alternative is bankruptcy. Liquidation represents an orderly and planned means of obtaining the greatest possible cash for an organization's assets. A company can legally declare bankruptcy first and the liquidate various divisions to raise needed capital When the stockholders of a firm can minimize their losses by selling the organization's assets

What is strategic management?

The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.

What are opportunities/threats?

external factors that affect a firm. Things they can also capitalize from

What are strengths/weaknesses?

internal factors of a firm.

What are the 4Ps?

product, place, promotion, price

What are the three activity types?

1. DIRECT: activities directly involved in creating value 2. INDIRECT: activities that make it possible to perform direct activities 3. QUALITY ASSURANCE: activities that ensure the quality of other activities

What are the basic steps used to develop a value chain?

1. Define purpose for developing value chain (cost centers, asset allocation, defining activities) 2. Divide activity segments into appropriate discrete sub-actiities 3. Attempt to isolate activities that have a. Different economics b. High potential for differentiation impract c. Represents a potential for high cost

What guidelines should be used when developing R&D objectives?

1. If the rate of technical progress is slow, the rate of market growth is moderate, and there are significant barriers to possible new entrants, then in-house R&D is the preferred solution. The reason is that R&D, if successful, will result in a temporary product or process monopoly that the company can exploit. 2. If technology is changing rapidly and the market is growing slowly, then a major effort in R&D may be risky because it may lead to the development of an ultimately obsolete technology or one for which there is no market. 3. If technology is changing slowly but the market is growing quickly, there generally is not enough time for in-house development. The prescribed approach is to obtain R&D expertise on an exclusive or nonexclusive basis from an outside firm. 4. If both technical progress and market growth are fast, R&D expertise should be obtained through acquisition of a well-established firm in the industry.

The process of generating strategies

1. Input stage a. Making small decisions in the input matrices regarding the relative importance of external and internal factors allows strategists to more effectively generate and evaluate alternative strategies. Good intuitive judgment is always needed in determining appropriate weights and ratings. 2. Matching stage a. Strategy is sometimes defined as the match an organization makes between its internal resources and skills and the opportunities and risks created by its external factors. These tools rely on information derived from the input stage to match external opportunities and threats with internal strengths and weaknesses.

What are the characteristics of an effective evaluation system? (its useful not complex)

1. Must be economical 2. Should be meaningful: Should relate to a firms specific objective 3. Provide managers with useful information 4. Timely information 5. True picture of the company( What's really going on) 6. Foster understanding NOT dominate decisions

What is the role of scope in creating competitive advantage?

1. Segment scope: differences I the needs or value chains required to serve different product or buyer segments can lead to a competitive advantage of focusing. 2. Vertical scope: the division of activities between a firm and its suppliers, channel and buyers 3. Geographic scope: allow a firm to share or coordinate value activities used to serve different geographic areas

How are linkages created in value chains?

1. The same function can be performed in different ways 2. The cost or performance of direct activities is improved by greater efforts in indirect actives 3. Activities performed inside form reduce the need to demonstrate explain or service a product in the field. 4. Quality assurance functions can be performed in different ways

What are the points in Rumelt's criteria for evaluating strategies?

1. consistency 2. consonance: Refers to the need for strategists to examine sets of trends, as well as individual trends, in evaluating strategies. 3. feasibility 4. advantage

What are the nine generic categories of activities associated with a value chain; which are primary; which are support?

1. supplier value chains 2. firm chain 3. channel value chain 4. buyer value chain 5. business unit value chain 6. supplier value chain 7. channel value chains 8. buyer value chains PRIMARY: 1. inbound logistics: activities associated with receiving, storing, and disseminating inputs to the product, such as material handling 2. operations 3. outbound logistics 4. marketing and sales 5. service SUPPORT: 1. Firm infrastructure 2. Human resources management 3. Technology development 4. Procurement

What is distinctive competence?

A firm's strength that cannot be easily matched or imitated by competitors

What is the value system?

A firms value chain is embedded in a larger stream of activities. Supplies have value chains "upstream value" that create and deliver the purchased inputs.

Of what value is MIS in the strategic management process?

A system that gathers, assimilates, and evaluates external and internal information to facilitate decision-making. The most important factor in differentiating successful from unsuccessful firms.

What is Porter's Five-Forces model?

According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of 5 forces Rivalry among competing forms Potential entry of new competitors Potential development of substitute products Bargaining power of suppliers Bargaining power of consumers

What is the I/O view?

Advocates that external (industry) factors are more important than internal factors in a firm for gaining and sustaining competitive advantage

What are the characteristics of a mission statement (i.e., attitude, customer orientation...)?

Allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity Needs to be broad to reconcile differences effectively among, and appeal to, an organization's diverse stakeholders Does not include monetary amounts, numbers, percentages, ratios, or objectives Fewer than 150 words in length Inspiring Identifies the utility of a firm's products Reveals that the firm is socially responsible Reveals that the firm is environmentally responsible Includes 9 components: customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept,, concern for public image, concern for employees Reconciliatory Enduring

What is the Resource Based View of the firm?

An approach that suggests internal resources to be more important for a firm than external factors in achieving and sustaining competitive advantage

What is the role of organizational culture in a firm?

Captures the subtle, elusive, and largely unconscious forces that shape a workplace Important to match external and internal factors in making strategic decisions 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 be taught to new members as the correct way to perceive, think, and feel

What is competitive advantage; sustained competitive advantage?

Competitive advantage: any activity a firm does especially well compared to activities done by rival firms sustained competitive advantage- competitive advantage sustained over a long period of time. Have to constantly adapt to changes in external factors and capitalize on them

What is contingency planning; how is one developed?

Contingency Plans: defined as alternative plans that can be put into effect if certain key events do not occur as expected. Only high-priority areas require the insurance of contingency plans. 1. Identify both good and bad events that could jeopardize strategies. 2. Determine when the good and bad events are likely to occur. 3. Determine the expected pros and cons of each contingency event. 4. Develop contingency plans for key contingency events. 5. Determine early warning trigger points key contingency events.

What are the components of a mission statement (ex. customers, markets, technology...)?

Customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concern for employees

What is a mission statement?

Declaration of an organization's "reason for being", what an organization wants to be and whom it wants to serve Answers the pivotal question: what is our business? Also called a creed statement, statement of purpose, statement of beliefs, statement of business principles

What are the five forces (including major characteristics of each) considered in an external audit?

Economic forces Social, cultural, demographic, and natural environment forces Political, governmental, and legal forces Technological forces Competitive forces

What is a long-term objective, a strategy?

Long term objective- specific results that an organization seeks to achieve in pursuing its basic mission (what will be accomplished), means more than one year, should be challenging, measurable, consistent, reasonable, and clear. Essential for organizational success Strategy: means by which long term objectives will be achieved. Potential action that require top management decisions and large amounts of the firm's resources.

What are the six functions in a business to consider with an internal audit?

Management, marketing, finance and accounting, production/operations, research and development (R&D), and management information systems operations

What are the relevant areas to consider with regard to each of the six functions?

Management- planning, organizing, motivating, staffing, controlling Marketing- customer analysis, selling products and services, product and service planning, pricing, distribution, marketing research, and opportunity analysis Finance/accounting- investment decision, financing decision, and the dividend decision Production/operations- process, capacity, inventory, workforce, and quality Research and development- shortage of ideas for new products, increased global competition, increased market segmentation, strong special interest groups, and increased government regulations are several factors making the successful development of new products more and more difficult, costly, and risky. Management information systems operations- purpose is to improve the performance of an enterprise by improving the quality of managerial decisions. Collects, codes, stores, synthesizes, and presents information that it answers important operating and strategic questions.

What is market segmentation?

Market segmentation is widely used in implementing strategies, especially for small and specialized firms. Market segmentation can be defined as the subdividing of a market into distinct subsets of customers according to needs and buying habits.

Organizational culture, politics and governance in strategic choice

ORG. CULTURE: is a system of shared assumptions, values, and beliefs, which governs how people behave in organizations. POLITICS: Internal politics affect the choice of strategies in all organizations. The hierarchy of command in an organization, combined with the career aspirations of different people and the need to allocate scarce resources, guarantees the formation of coalitions of individuals who strive to take care of themselves first and the organization second, third, or fourth. GOVERNANCE: Boards are being held accountable for the entire performance of the firm. Boards of directors are increasingly sued by shareholders for mismanaging their interests. New accounting rules in the USA and Europe now enhance corporate-governance codes and require much more extensive financial disclosure among publicly held firms.

What tasks are accomplished in each phase of the strategic management process?

Strategy formulation:Develop a vision and mission, identifying an organization's external opportunities and threats, determining internal strengths and weaknesses, establish long term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy implementation:Requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed Strategy evaluation:Determining which strategies/implementation activities are not working well. 3 stages: measure performance, review external and internal factors that are the bases for current strategies, and taking corrective action.

SWOT

Strength Weakness Opportunities Treats

What is the nature of strategy implementation?

Successful strategy formulation does not guarantee successful strategy implementation. It is always more difficult to do something (strategy implementation) than to say you are going to do it (strategy formulation)!

What is competitive intelligence?

Systematic and ethical process for gathering and analyzing information about the competition's activities and general business trends to further a businesses' own goals

What is an internal audit?

The process of gathering and assimilating information about the firm's management, marketing, finance/accounting, production/operations, R&D, and MIS operations. The purpose is to identify/evaluate/prioritize a firm's strengths and weaknesses

What is value chain analysis?

The process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products.

What is a proforma statement; what are the basic steps in preparing these statements?

There are six steps in performing projected financial analysis: 1. Prepare the projected income statement before the balance sheet. Start by forecasting sales as accurately as possible. Be careful not to blindly push historical percentages into the future with regard to revenue (sales) increases. Be mindful of what the firm did to achieve those past sales increases, which may not be appropriate for the future unless the firm takes similar or analogous actions (such as opening a similar number of stores, for example). If dealing with a manufacturing firm, also be mindful that if the firm is operating at 100 percent capacity running three eight-hour shifts per day, then probably new manufacturing facilities (land, plant, and equipment) will be needed to increase sales further. 2. Use the percentage-of-sales method to project cost of goods sold (CGS) and the expense items in the income statement. For example, if CGS is 70 percent of sales in the prior year (as it is in Table 8-7), then use that same percentage to calculate CGS in the future year—unless there is a reason to use a different percentage. Items such as interest, dividends, and taxes must be treated independently and cannot be forecasted using the percentage-of-sales method. 3. Calculate the projected net income. 4. Subtract from the net income any dividends to be paid for that year. This remaining net income is retained earnings (RE). Bring this retained earnings amount for that year (NI − DIV = RE) over to the balance sheet by adding it to the prior year's RE shown on the balance sheet. In other words, every year a firm adds its RE for that particular year (from the income statement) to its historical RE total on the balance sheet. Therefore, the RE amount on the balance sheet is a cumulative number rather than money available for strategy implementation! Note that RE is the first projected balance sheet item to be entered. As a result of this accounting procedure in developing projected financial statements, the RE amount on the balance sheet is usually a large number. However, it also can be a low or even negative number if the firm has been incurring losses. The only way for RE to decrease from one year to the next on the balance sheet is (1) if the firm incurred an earnings loss that year or (2) the firm had positive net income for the year but paid out dividends more than the net income. Be mindful that RE is the key link between a projected income statement and balance sheet, so be careful to make this calculation correctly. 5. Project the balance sheet items, beginning with retained earnings and then forecasting stockholders' equity, long-term liabilities, current liabilities, total liabilities, total assets, fixed assets, and current assets (in that order). Use the cash account as the plug figure—that is, use the cash account to make the assets total the liabilities and net worth. Then make appropriate adjustments. For example, if the cash needed to balance the statements is too small (or too large), make appropriate changes to borrow more (or less) money than planned. 6. List comments (remarks) on the projected statements. Any time a significant change is made in an item from a prior year to the projected year, an explanation (remark) should be provided. Remarks are essential because otherwise pro formas are meaningless.

Advantages/disadvantages of functional, divisional, SBU and matrix structures

functional- (adv) simple and inexpensive, capitalizes on specialization of business activities such as marketing and finance, minimizes need for elaborate control system, allows for rapid decision making. (dis) accountability forced to top, delegation of authority and responsibility discouraged, low morale, short term narrow thinking divisional- (adv)- clear accountability, local control of local situations, career development choices, easy adding of new products (dis)- can be costly, duplication of activities, elaborate control system, some may receive special treatment SBU: The advantages of improved coordination and accountability. Another advantage of the SBU structure is that it makes the tasks of planning and control by the corporate office more manageable. Two disadvantages of an SBU structure are that it requires an additional layer of management, which increases salary expenses Matrix- (adv) clear project objectives, results seen by employees, easy to shut down project, shared resources instead of duplicate, (dis)- costly, dual sources of reward and punishment, shared authorityy and reporting,

BCG matrix

top left quadrant: stars (2) integration, market penetration, development