Strategic Management and Business Policy Mid-Term

executive directors

- directing of activities toward the accomplishment of corporate objectives

codetermination

- inclusion of corporations' workers on its board, began only recently in the US

outside director

- may be executives of other firms but are not employee's of the board's corporation - predominant director in large U.S. corporations - people favor due to less bias

affiliated directors

- not really employed by corporation, handle the legal or insurance work for the company or are important suppliers

interlocking director

- occurs when two firms share a director or when an executive of tone firm sits on the board of the second firm

lead directors

- person consulted by the Chair/CEO regarding board affairs and coordinates the annual evaluation of the CEO

agency theory

- states that problems arise in corporations because agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation

inside director

- typically officers or executives employed by the corporation

Basic Elements of the Strategic Management Process

-Environmental Scanning -Strategy formulation -strategy implantation -Evaluation and control

Carroll's Four Responsibilities of Business

1. Economic responsibility 2. Legal responsibility 3. Ethical responsibility 4. Discretionary responsibility

Some possible triggering events:

1. New CEO 2. external intervention 3. threat of a change in ownership 4. performance gap 5. strategic inflection point

3 Key Issues of Corporate Strategy Corporate strategy addresses three key issues facing the corporation as a whole:

1. The firm's overall orientation toward growth, stability or retrenchment (directional strategy). 2. The industries or markets in which the firm competes through its products and business units (portfolio analysis). 3. The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units (parenting strategy).

3 things about transformational leaders

1. the ceo articulates a strategic vision for the corporation 2. the ceo presents a role for others to identify with and to follow. 3. the CEO communicates high performance standards and also shows confidence in the followers abilities to meet these standards.

The triple bottom line involves:

1. the management of traditional profit/loss. 2.the management of the companies social responsibilities, and; 3. the management of its environmental responsibility.

Stakeholder Analysis Process

1.. Identify primary stakeholders, those with a direct connection with the corporation and who have sufficient bargaining power to directly affect corporate activities (customers, employees, suppliers, shareholders and creditors) 2. Identify the secondary stakeholders, those with an indirect stake in the corporation, but who are also affected by its activities (nongovernmental organizations, activists, local communities, trade associations, competitors and governments) 3. Estimate the effect on each stakeholder group from and particular decision

Z-Value Bankruptcy formula: Z=

1.2X+1.4X+3.3X+0.6X+ 1.0X

quick ratio (acid test)

=Current Assets-Inventory/current liabilities

liquidity ratio

=Current Assets/Current Liabilities

ACTIVITITY RATIO

=NET SALES/INVENTORY

ROI

=Net profit after taxes/Total Assets

DEBT-EQUITY RATIO

=TOTAL DEBT/SHAREHOLDER'S EQUITY

DEBT-ASSET RATIO

=TOTAL DEBT/TOTAL ASSETS

cash ratio

=cash+cash equivalencies/current liabilities

Net Profit Margin

=net profit after taxes/net sales

Gross Profit Margin

=sales-COGS/net sales

Retrenchment Strategies

A company may pursue retrenchment strategies when it has a weak competitive position in some or all of its product lines resulting in poor performance—sales are down and profits are becoming losses.

Horizontal Growth

A firm can achieve horizontal growth by expanding its operations into other geographic locations and/or by increasing the range of products and services offered to current markets. Horizontal growth results in horizontal integration—the degree to which a firm operates in multiple geographic locations at the same point on an industry's value chain

Stability Strategies

A pause/proceed-with-caution strategy is, in effect, a timeout—an opportunity to rest before continuing a growth or retrenchment strategy. A no-change strategy is a decision to do nothing new—a choice to continue current operations and policies for the foreseeable future. A profit strategy is a decision to do nothing new in a worsening situation but instead to act as though the company's problems are only temporary.

Substitute product

A product that appears to be different but can satisfy the same need as another product The identification of possible substitute products means searching for products that can perform the same function, even though they have a different appearance.

The Bargaining Power of Buyers

Ability of buyers to force prices down, bargain for higher quality and play competitors against each other Large purchases, backward integration, alternative suppliers, low cost to change suppliers, product represents a high percentage of buyer's cost, buyer earns low profits, product is unimportant to buyer

The Bargaining Power of Suppliers

Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services and play competitors against each other. A buyer or a group of buyers is powerful if some of the following factors hold true: Industry is dominated by a few companies Unique product or service Substitutes are not readily available Ability to forward integrate Unimportance of product or service to the industry

Corporate Strategy

Corporate strategy is primarily about the choice of direction for a firm as a whole and the management of its business or product portfolio.

Whistleblowers

Employees who report illegal or unethical behavior on the part of others

NAFTA

GOAL: Improve trade among the three member countries rather than complete economic integration. -launched in1994.

Directional Strategy

Growth strategies expand the company's activities. Stability strategies make no change to the company's current activities. Retrenchment strategies reduce the company's level of activities.

Concentric (Related) Diversification and Synergy

Growth through concentric diversification into a related industry may be a very appropriate corporate strategy when a firm has a strong competitive position but industry attractiveness is low. The search is for synergy, the concept that two businesses will generate more profits together than they could separately.

Rivalry Among Existing Firms

In most industries, corporations are mutually dependent. A competitive move by one firm can be expected to have a noticeable effect on its competitors and thus may cause retaliation. According to Porter, intense rivalry is related to the presence of several factors, including: • Number of competitors • Rate of industry growth • Product or service characteristics • Amount of fixed costs • Capacity • Height of exit barriers • Diversity of rivals

transferability

Is the ability of competitors to gather the resources and capabilities necessary to support a competitive challenge.

Replicability

Is the ability of competitors to use duplicated resources and capabilities to imitate the other firm's success.

P/E RATIO

MARKET PRICE PER SHARE/EARNING PER SHARE

Backwards and Forward Integration

More specifically, assuming a function previously provided by a supplier is called backward integration (going backward on an industry's value chain). Assuming a function previously provided by a distributor is labeled forward integration (going forward on an industry's value chain).

Kohlberg's Levels of Moral Development

Pre conventional level - concern for one's self Conventional level - considerations for society's laws and norms Principled level - guided by an internal code of ethics

Parenting Strategy

The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units

Marketing Mix

The particular combination of key variables (product, place, promotion, and price) that can be used to affect demand and to gain competitive advantage

Financial Leveraging

The ration of total debt to total asset. Helpful in describing how debt is used to increase the earning available to common shareholders

Friedman's Traditional View of Business Responsibility

There is one and only one social responsibility of business- to use its resources and engage activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception and fraud

Vertical Growth Vertical growth can be achieved by taking over a function previously provided by a supplier or distributor. Vertical growth results in vertical integration—the degree to which a firm

Vertical growth can be achieved by taking over a function previously provided by a supplier or distributor. Vertical growth results in vertical integration—the degree to which a firm Vertical growth can be achieved by taking over a function previously provided by a supplier or distributor. Vertical growth results in vertical integration—the degree to which a firm

Conglomerate (Unrelated) Diversification

When management realizes that the current industry is unattractive and that the firm lacks outstanding abilities or skills that it could easily transfer to related products or services in other industries, the most likely strategy is conglomerate diversification—diversifying into an industry unrelated to its current one.

VRIO framework

a theoretical framework that explains and predicts firm-level competitive advantage. A firm can gain a competitive advantage if it has resources that are valuable (V), rare ( R ), and costly to imitate (I). The firm also must organize (O) to capture the value of the resources. VRIO framework

multidomestic industries

are specific to each country or group of countries

Objectives

are the end results of planned activity.

Moral Relativism

claims that morality is relative to some personal, social or cultural standard and that there is no method for deciding whether one decision is better than another

Corporate Strategy

describes a company's overall direction in terms of its general attitude towards growth and management of its various businesses and product lines. -3 Main Categories: 1. stability 2. growth 3. retrenchment

punctual equilibrium

describes corporations as evolving through relatively long periods of stability (equilibrium periods) punctuated by relatively short bursts of fundamental change (revolutionary period)

Vision

describes what the organization would like to become. (future view)

Sarbanes Oxley Act

designed to protect shareholders from the excesses of failed oversight that characterized criminal activities at Enron, Tyco, WorldCom, Adelphia communications, Qwest, and Global Crossing

social environment factors effect multiple industries and are as follows:

economic forces- that regulate the exchange of materials, money, energy, and info. technological forces- that generate problem-solving inventions political-legal forces- that allocate power and provide constraining and protecting laws and regulations. sociocultural forces that regulate the values, mores, and customs of society.

Board of directors

govern the corportation; has an obligation to approve all decisions that might affect the long-term performance of the corp.

Delphi technique

in which separated experts independently asses the likelihoods of specified events

Bankruptcy

involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations.

competitive intelligence

is a formal program of gathering info on a companys competitors. AKA "business intelligence

brainstorming

is a non-quantitative approach that simply requires the presence of people with some knowledge of a situation in order to concept out the future

strategy implementation

is a process by which strategies and policies are put into action through the development programs, budgets and procedures.

STEEP analysis

is a tool commonly used in marketing to evaluate different external factors which impact an organization. It is essential for every business to consider some external forces before they can take decisions

Risk

is composed not only of probability that the strategy will be effective but also the amount of assets the corporation must allocate to the strategy and length of time the assets will be unavailable to others.

social environment

is mankind's social system that includes general forces that do not directly touch on the short-run activities of the organization but that can influence its long-term decisions.

Innovation

is meant to describe new products, services, methods and organizational approaches that all the business to achieve extraordinary results.

triggering event

is something that acts as a stimulus for a change in strategy.

transferability

is the ability of competitors to gather the resources and capabilities necessary to support competitive challenge.

Functional strategy

is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resources productively. it is concerned with a developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.

strategic choice

is the evaluation of alternative strategies and selection of the best alternative.

European Union (EU:)

is the most significant trade associate in the world. -27 member countries make up the EU. -Goal: complete economic integration of all 27 member nations

Strategy Formulation

is the process of investigation, analysis, and decision making that provides the company with the criteria for attaining a competitive advantage.

Mission

is the propose or reason for the organization's existence.

imitability

is the rate at which firm's underlying resources, capabilities, or core competencies are duplicated.

transparency

is the speed with which other firms can understand the relationship.

multipoint competition,

large multi-business corporations compete against other large multi-business firms in a number of markets. These multipoint competitors are firms that compete with each other not only in one business unit, but also in a number of business units.

transformational leaders

leaders that provide change and movement in an organization by providing a vision for that change

Societal Environment

mankind's social system that includes general forces that do not directly touch on the short-run activities of the organization, but that can influence its long term decisions. Economic, technological, political-legal and sociocultural

Strategy

of a corportation forms a comprehensive master approach that states how the

global industries

operate worldwide, in a global industry MNCs activities in one country are significantly affected by activities in another

Economic Responsibility

produce goods and services of value to society so that the firm may repay its creditors and increase the wealth of its shareholders

stewardship theory

proposes that because of long tenure, insiders (senior executives) tend to identify with the corporation and its success

Discretionary Responsibility

purely voluntary obligations a corporation assumes

Due Diligence (care)

reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.

Sustainability

refers to the use of business practices to manage the triple bottom line as was discussed earlier.

STEEP analysis

scanning of Sociocultural, Technological, Economic, Ecological, and Political-legal environmental forces

Capital budgeting

the analyzing and ranking of possible investments in fixed assets such as land, buildings and equipment in terms of the additional outlays and additional receipts that will result from each investment

Stakeholder Analysis

the identification and evaluation of corporate stakeholders

new entrants

to an industry typically bring to it new capacity, a desire to gain market share and potentially substantial resources.

New Entrants

to an industry typically bring to it new capacity, a desire to gain market share, and substantial resources.

new entrants

to an industry typically bring to it new competitive force as high, medium, low strength

core competencies

unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost

extrapolation

us the extension of present trends into the future

Business strategy

usually occurs at the business unit or product level and it emphasizes improvement of the competitive position of a corporations products or services in the specific industry or market segment.

Strategic Vision

what the company is capable of becoming.

organizational learning theory

which says that an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment.

Porters Approach to Industry Analysis to the company's advantage.

• Porter contends that a Corporation is most concerned with the intensity of competition within its industry. • The level of this intensity is determined by basic competitive forces. • The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long run return on invested capital. • In carefully scanning the industry, the corporation must asses the importance to it's success of each of the six forces: 1. Threats of new entrants, 2. Rivalry among existing firms, 3. Threat of substitute products or services, 4. Bargaining power of buyers, 5. Bargaining power of suppliers, 6. Relative power of other stakeholders. The stronger each of these forces, the more limited companies are in their ability to raise prices and earn greater profits. • Although Porter mentions only five forces, a sixth - other stakeholder - is added here to reflect the power that government, local communities, and other groups from the task environment wield over industry activities. Using Porter's model a high force can be regarded as a threat because it is likely to reduce profits. A low force, in contrast can be viewed as an opportunity because it may allow the company to earn greater profits. • In the short run, these forces act as constraints on a company's activities. • In the long run, however, it may be possible for a company, through its choice of strategy, to change the strength of one or more of the forces