MBA 705: Exam 2

Stakeholders

-Individuals or groups who are affected by or can influence an organization's operations -Different stakeholders have different ideas about organizational goals and most attempt to influence them to some degree.

According to the notion of disaggregation and reaggregation, A. progressive firms have begun to form partnerships instead of fulfilling all of the business functions themselves. B. the Internet is not a viable means of product or service distribution. C. effective business models do not change. D. all of the above.

A. progressive firms have begun to form partnerships instead of fulfilling all of the business functions themselves.

Goals are specific and often quantified versions of objectives. A. True B. False

False. Objectives are specific and often quantified versions of goals.

Consumer-to-Business (C2B):

The segment of electronic commerce whereby consumers utilize the Internet to solicit transactions from businesses.

Self-Reference Criterion:

The unconscious reference to one's own cultural values as a standard of judgment.

mission

the reason for the firm's existence

Social Responsibility

}Social Responsibility refers to the expectation that business firms should serve both society and the financial interests of the shareholders. }Ethics is about the individual; social responsibility is about the firm.

Takeovers

}Takeover: A purchase of a controlling quantity of shares of a firm by an individual, a group of investors, or another organization. }Leveraged Buyout (LBO): Takeovers that rely heavily on borrowed funds.

Commoditization & Mass Customization

-Commoditization—Firms are having a more difficult time distinguishing their products and services from those of their rivals. -Products from digital cameras to cake mix have become more differentiated, creating too many options for buyers. To simplify, buyers tend to reduce the purchase decision to a few factors such as key features or quality. If they cannot distinguish among the competitors along these factors, they may view the product as a commodity and base their final purchase decision on price.

Social Forces Case #1 Eating Habits

-Consumers "super size" at record rates while demanding healthier foods. -Many fast food restaurants have been "supersizing" their meal combinations by adding extra fries and larger drinks, while at the same time expanding alternatives for items such as grilled chicken sandwiches and salads

Environmental Scanning

-Definition—the systematic collection and analysis of information about relevant macroenvironmental trends. }Keeping up with business trends is a form of environmental scanning. -Today, obtaining key information is often not the problem. The real challenge is making sense of the deluge of reports, press releases, statistics, and other information.

Social Forces: Global Concerns

-Firms operating in multiple countries must address multiple sets of social forces. -Social forces are influenced by national culture, the generally accepted values, traditions, and patterns of behavior in a society. Firms should recognize these cultural differences. -Some firms struggle because their managers consciously refer to their own cultural values as a standard of judgment, a phenomenon known as the self-reference criterion.

Strategy and The Internet

-Has the Internet created new business models or just altered the old ones? -Although the Internet plays a substantial role, critics challenge the notion that "new business models" are needed to compete in the "new economy." Michael Porter and others argue that the market forces that governed the traditional economy have not disappeared in the Internet economy.

Disaggregation & Reaggregation

-Large firms exist because they can perform most tasks—raw material procurement, production, human resource management, sales, and so forth—more efficiently than they would otherwise be performed if they were "outsourced" to the open market. -Today, many progressive firms have "disaggregated" by no longer perform all of their functional activities, but instead "reaggregate" by searching for partners who can perform some of the activities more efficiently.

Technological Forces

-Scientific improvements & innovations -The Internet is arguably the most pervasive technological force affecting most industries.

Social Forces

-Societal values -Trends -Traditions -Religious practices -Concern for the environment

Strategic Dimensions of the Internet

-The Internet has influenced strategic management in very specific ways. -Contrary to early expectations, the Internet has not always generated greater profits for businesses. Consumers have benefitted immensely. -Five Strategic Dimension of the Internet are addressed in the following slides.

6 Explanations for Unethical Behavior

1.Individuals deny responsibility, rationalizing that they have no other choice but to participate in unethical behavior. 2.Individuals deny injury, suggesting that the unethical behavior did not really hurt anyone. 3.Individuals deny rights of the victims, rationalizing that "they deserve what they got anyway." 4.Individuals engage in social weighting by making carefully controlled comparisons. 5.Individuals can appeal to higher values by suggesting that justification of the unethical behavior is due to a higher order value. 6.Individuals may invoke the metaphor of the ledger, arguing that they have the right to engage in certain unethical practices because of other good things they have done

6 Perspectives on Managerial Ethics

1.The Utilitarian view: Anticipated outcomes and consequences should be the only considerations when evaluating an ethical dilemma. 2.The Self-Interest view: Benefits of the decision-maker(s) should be the primary considerations. 3.The Rights view: Evaluate organizational decisions on the extent to which they protect basic individual rights. 4.The Justice view: All decisions will be made in accordance with pre-established rules or guidelines. 5.The Integrative Social Contracts view: Decisions should be based on existing norms of behavior, including cultural, community, or industry factors. 6.The Religious view: Decisions should be based on personal or religious convictions.

Objectivism:

A philosophical perspective, espoused by Ayn Rand, that emphasizes an objective reality understood by logic and reason and focuses on individual freedom and property rights.

Commoditization:

A process whereby firms are having a more difficult time distinguishing their products and services from those of their rivals.

Agency Problem:

A situation in which a firms' top managers (i.e., the "agents" of the firms' owners) do not act in the best interests of the shareholders.

Culture:

A society's generally accepted values, traditions, and patterns of behavior.

The Internet A. has unleashed a number of successful business models. B. has unleashed only successful business models. C. has rendered traditional business models as invalid. D. none of the above

A. has unleashed a number of successful business models.

E-tailing:

Another term for B2C.

When a recession occurs __________. A. all industries benefit B. some industries benefit C. no industries benefit D. none of the above

B A recession tends to help firms in most industries, but it does not benefit all industries.

E-tailing is synonymous with __________. A. B2B B. B2C C. C2C D. C2B

B E-tailing refers to B2C commerce.

Forms of Electronic Commerce

B2B, B2C, B2G. C2B, C2C

Which of the following is not an example of a social force? A. trends B. values C. industrial change D. all of the above

C Social forces include such factors as societal values, trends, traditions, and religious practices.

Scientific improvements and innovations are examples of A. social forces B. engineering credibility C. technological forces D. None of the above

C Technological forces

The systematic collection and analysis of information about relevant macroenvironmental trends is known as __________. A. strategic planning B. strategic management C. environmental scanning D. none of the above.

C This is the definition of the term environmental scanning.

The ability to individualize product and service offerings to meet specific buyer needs is known as A. outsourcing B. offshoring C. mass customization D. commoditization

C - Mass customization

Outsourcing efforts can fail because A. of unknown government regulations B. of a lack of production infrastructure in the outsourcing firm C. a firm might outsource an activity that should not be outsourced D. all of the above

C. a firm might outsource an activity that should not be outsourced

Which of the following is not a strategic dimension of the Internet? A. focus on interactivity B. potential for cost reductions and cost shifting C. the elimination of a need for profitability D. none of the above

C. the elimination of a need for profitability

Societal Values:

Concepts and beliefs that members of a society tend to hold in high esteem.

Dimension #4: Interactivity

Consumers discuss their experiences with products and services on bulletin boards or in chat rooms. Firms can readily exchange information with trade associations that represent their industries.

Outsourcing:

Contracting out a firm's noncore, non-revenue-producing activities to other organizations primarily to reduce costs.

Partnerships:

Contractual relationships with enterprises outside the organization.

Social Forces Case #2 Automobiles

Contrary to demand patterns in other parts of the world, demand for large vehicles remains strong in the U.S. amidst cries for greater fuel economy.

The decline in unit costs of a product or service that occurs as the absolute volume of production increases is known as A. commoditization B. mass customization C. restructuring D. none of the above

D Economies of scale

Relocating some or all of a firm's manufacturing or other business processes to another country to reduce costs is known as A. outsourcing B. partnering C. mass customization D. None of the above.

D Offshoring

Technological forces often __________. A. decimate an entire industry B. spawn new industries C. vary substantially among industries D. all of the above

D Technological forces vary across industries and can eliminate existing industries and create new ones.

How has the Internet changed strategic management? A. It promotes information symmetry. B. It can often be used as a distribution channel. C. It often reduces costs. D. all of the above

D The Internet promotes information symmetry, can be used as a distribution channel in some instances, and has the potential for cost shifting and cost reductions.

The unconscious reference to one's own cultural values as a standard of judgment is known as: A. cultural affluence B. cultural distinction C. cultural awareness D. None of the above

D (self-reference criterion)

Which of the following is a means of environmental scanning? A. reading the business section in a local newspaper B. reading the WSJ C. reading trade journals D. all of the above

D. all of the above

The World is Flat (Thomas Friedman, 2005)

During the dot-com bubble of the late 1990s, telecommunications firms laid fiber optic cables across the oceans to connect the U.S. with China and India. Since the dot-com bust, these cables have provided high quality, low cost contact with developing nations, "leveling the playing field." "Any activity that can be digitized and moved around will get moved around."

In The World is Flat, Thomas Friedman argued that recent global and technological changes have increased the world dominance of Western powers like the United States.

False

The pace of technological change relative to an industry's development is generally easy to predict.

False

The agency problem refers to the balancing act a firm must exhibit when attempting to satisfy the myriad of governmental agencies. A. True B. False

False .The agency problem refers to a situation in which a firm's managers (i.e., the owners' agents) fail to act in the best interests of the shareholders.

Commoditization refers to the ability to individualize product and service offerings to meet specific buyer needs.

False Mass customization refers to the ability to individualize product and service offerings to meet specific buyer needs.

The unconscious reference to one's own cultural values as a standard of judgment is known as cultural bias.

False The unconscious reference to one's own cultural values as a standard of judgment is known as the self-reference criterion.

Most organizations can be classified as either ethical or unethical .A. True B. False

False. Ethics is an individual phenomenon; managers and other employees can be ethical or unethical.

If a firm is able to consistently earn above-average profits, it is effectively balancing the goals of its stakeholders. A. True B. False

False. Profitability is only one stakeholder goal.

Employee Stock Ownership Plans (ESOPs):

Formal programs that transfer shares of stock to a company's employees.

Forms of Electronic Commerce

Many traditional firms are integrating e-commerce into their existing business models These firms are attempting to build synergy between traditional and virtual storefronts.

Justice View of Ethics:

Perspective suggesting that all decisions will be made in accordance with established rules or guidelines.

Utilitarian View of Ethics:

Perspective suggesting that anticipated outcomes and consequences should be the only considerations when evaluating an ethical dilemma.

Integrative Social Contracts View of Ethics:

Perspective suggesting that decisions should be based on existing norms of behavior, including cultural, community, or industry factors.

Religious View of Ethics:

Perspective that evaluates organizational decisions on the basis of personal or religious convictions.

Rights View of Ethics:

Perspective that evaluates organizational decisions on the extent to which they protect individual rights

Dimension #2: Internet as distribution channel

The Internet acts as a distribution channel for non-tangible goods and services. Consumers can purchase items such as airline tickets, insurance, stocks, and computer software online without the necessity of physical delivery.

Dimension #3: Speed

The Internet offers numerous opportunities to improve the speed of the actual transaction, as well as the process that leads up to and follows it.

Dimension #5: Potential for cost reductions and cost shifting

The Internet provides many businesses with opportunities to minimize their costs—both fixed and variable—and thereby enhance flexibility.

Mass Customization:

The ability to individualize product and service offerings to meet specific buyer needs.

Economies of Scale: T

The decline in unit costs of a product or service that occurs as the absolute volume of production increases.

Ethical Relativism:

The idea that ethics is based on accepted norms in a culture, meaning that what is ethical in one nation or culture might be unethical in another. Goals: Desired general ends toward which efforts are directed.

Adverse Selection:

The inability of shareholders to identify the precise competencies and personal attributes of top managers when they are hired.

Triple Bottom Line

The notion that firms must maintain and improve social and ecological performance in addition to economic performance.

Diversification:

The process of acquiring companies to increase a firm's size.

Business-to-Consumer (B2C):

The segment of electronic commerce whereby businesses utilize the Internet to solicit transactions from consumers, also known as etailing.

Business-to-Business (B2B):

The segment of electronic commerce whereby businesses utilize the Internet to solicit transactions from each other.

Business-to-Government (B2G):

The segment of electronic commerce whereby businesses utilize the Internet to solicit transactions from government entities.

Consumer-to-Consumer (C2C):

The segment of electronic commerce whereby consumers utilize the Internet to solicit transactions from each other.

Clicks and Bricks:

The simultaneous application of both electronic ("clicks") and traditional ("bricks") forms of commerce.

Environmental Scanning:

The systematic collection and analysis of information about relevant macroenvironmental trends.

Mobile Commerce (M-Commerce):

Transactions conducted in an entirely wireless environment, such as using a smartphone to both purchase and download an airline ticket or piece of music.

One of the reasons that outsourcing/offshoring debates are so difficult to resolve is that different countries have markedly different regulations.

True

The same social force can affect different industries in different ways.

True

Reading business publications can serve as a means of environmental scanning.

True Environmental scanning is the process of staying abreast of changes in the macroenvironment, a process that can be assisted by reading business publications.

In many respects, social forces are the drivers of consumer markets

True In general, social forces are very strong in consumer markets.

The expansion of a religion in an emerging country is an example of a social force.

True Religious values in all countries, emerging or otherwise, constitute a key social force.

Environmental scanning can be difficult for large firms because of the availability of too much information.

True The main problem created by environmental scanning is often one of determining which information available warrants attention.

Dimension #1: Movement toward information symmetry-

Typical markets are characterized by information asymmetry, whereby sellers control key information that is not available to buyers. The Internet promotes information symmetry, whereby buyers and sellers share information.

Information Symmetry:

When all parties to a transaction share the same information concerning that transaction.

Information Asymmetry:

When one party has information that another does not.

Moral Hazard:

When parties in an arrangement do not share equally in the risks and benefits.

Goals

desired ends toward which efforts are directed

Mass Customization

is the ability to individualize product and service offerings to meet specific buyer needs. -Personalization does not occur at the expense of economies of scale. -Technology has enabled firms to engage in mass customization.

Managerial Ethics

refers individual responsibility to make business decisions that are legal, honest, moral, and fair. -Agreeing on what is "legal" and "honest" may not be difficult. -Agreeing on what is "moral" and "fair" can be a difficult task!

Objectives

specific, often quantified, versions of goals

The Agency Problem

}A situation in which a firm's managers—the "agents" of the owners—fail to act in the best interest of the shareholders. The extent to which this problem occurs is widely debated. }The problem is rooted in moral hazard, when the parties in an arrangement—such as owners and managers—do not share equally in the risks and benefits. }It is complicated by adverse selection, the inability of shareholders to identify the precise competencies and personal attributes of top managers when they are hired.

Corporate Social Responsibility (CSR)- PRO & CON

}ARGUMENTS AGAINST A CSR emphasize that firms should be active socially only when doing so enhances profits. Managers don't know what's in the best interest of society and they shouldn't spend shareholder resources on such endeavors. Firms don't need to "give back" because they already serve society by providing needed products, jobs, and tax revenues. }Either way, considering stakeholder perspectives—at least to some extent—is generally good business and can stave off government regulation.

Case Analysis Steps 7-8Social & Technological Forces

}Identify the specific social (step 7) and technological (step 8) forces that affect the industry. }Specify precisely how the factors identified affect the industry. }Focus on the industry, not the firm. Specific applications to the firm come later.

Outsourcing & Offshoring

}Outsourcing—contracting out a firm's non-core, non-revenue-producing activities to other organizations primarily to reduce costs. }Offshoring—relocating some or all of a firm's manufacturing or other business processes to another country to reduce costs—is similar to outsourcing, but enables the firm to retain control of the operations abroad instead of relinquishing them to other firms. }U.S. trade deficit was $635 billion in 2010, $273 of which was with China. India and Mexico are also prominent. }Some "white collar" jobs are now being outsourced, including attorneys and accountants. }Cost-cutting is the incentive for both outsourcing and offshoring.

Management Serves Its Own Interests

}Perspective #1 on the Agency Problem ◦Executives seek to grow the firm because compensation tends to increase with firm size. ◦Executives diversify the firm to increase prospects for survival at the expense of profitability.

Management and Stockholders Share Same Interests

}Perspective #2 on the Agency Problem ◦Since managers' livelihoods are directly tied to the success of the firm, they tend to manage it in the best interest of the shareholders. ◦Stock options can support this perspective by "turning the managers into owners."

Pros & Cons of Takeovers

}Pro: Takeovers provide a needed system of checks and balances. }Pro: The threat of a takeover can pressure managers to operate their firms more efficiently. }Con: The need to pay back large loans can cause management to overemphasize the short term. }Con: Extra debt required for an LBO can lead to bankruptcy.

Sustainable Strategic Management (SSM)

}Sustainable strategic management (SSM) is a broader notion of social responsibility refers to the strategies and related processes that promote superior performance from both market and environmental perspectives. }The SSM perspective seeks to integrate the needs to earn profits and to serve society.

Corporate Social Responsibility (CSR)- PRO & CON

}The triple bottom line is the notion that firms must maintain and improve social and ecological performance in addition to economic performance.

Corporate Social Responsibility (CSR)- PRO & CON

}Whether a firm has a social responsibility (and if so, to what degree) is widely debated. }ARGUMENTS FOR A CSR focus on the need for firms to "give back" to the community. They highlight both the influence and resources available to firms in terms of advertising, product development, and community involvement.