BADM 482- Ch. 1
Define Risk Capital
Capital that cannot be recovered if a company fails and goes bankrupt.
Define Sustained Competitive Advantage
A company's strategies enable it to maintain above-average profitability for a number of years
When is the strategic plan generated?
A period of 1-5 years
Define Goal
A precise and measurable desired future state that a company attempts to realize.
Define Strategy
A set of related actions that managers take to increase their company's performance.
What should the various strategies and capital investments made by a company do? (2)
fit together to generate above-average profitability and profit growth.
Define Stakeholders
individuals or groups that have an interest, claim, or stake in the company, in what it does, and in how well it performs
How was Walmart an innovator in its industry?
innovator in information systems, logistics, and human resource practices.
What obligation do managers have with the investment of profits?
invest those profits in ways that maximize shareholder value.
What is likely to occur when a company has a sustained competitive advantage? (2)
likely to gain market share from its rivals and thus grow its profits more rapidly than those of rivals.
How can managers maximize shareholder value?
managers must formulate and implement strategies that enable their companies to outperform rivals and give them a competitive advantage
How can managers increase shareholder values? (2)
managers must pursue strategies that increase the profitability of the company and ensure that profits grow
Define Profit Growth
measured by the increase in net profit over time.
Define Values (3)
state how managers and employees should conduct themselves, how they should do business, and what kind of organization they should build to help a company achieve its mission.
What are business-level general managers concerned with?
strategies that are specific to a particular business
What are corporate-level general managers concerned with?
strategies that span individual businesses
What responsibility must individual managers take?
take responsibility for formulating strategies to attain a competitive advantage and for putting those strategies into effect.
What does a product orient business definition focus on?
the characteristics of the products sold and the markets served,
What does the corporate level of management consist of? (3)
the chief executive officer (CEO), other senior executives, and corporate staff.
What is the idea of the self-service supermarket business model?
the idea that costs can be lowered by replacing a full-service retail format with a self-service format and a wider selection of products sold These savings are passed onto consumers in the form of lower prices, which in turn grow revenues and help the company to achieve further cost reductions from economies of scale
What is the strategy making process?
the process by which managers select and then implement a set of strategies that aim to achieve a competitive advantage.
What are functional level manager responsible for?
the specific business functions or operations (human resources, purchasing, product development, customer service, and so on) that constitute a company or one of its divisions.
Define Capital
the sum of money invested in the company: that is, stockholders' equity plus debt owed to creditors.
What is the responsibility of general managers?
they are responsible for deciding how to create a competitive advantage and achieve high profitability with the resources and capital they have at their disposal.
What is An important first step in the process of formulating a mission?
to arrive at a definition of the organization's business.
What kind of major strategic role do functional managers have?
to develop functional strategies in their area that help fulfill the strategic objectives set by business- and corporate-level managers
What is the responsibility of Corporate-level managers, and particularly the CEO?
to ensure that the corporate and business strategies that the company pursues are consistent with maximizing profitability and profit growth.
What is the essential purpose of the external analysis?
to identify strategic opportunities and threats in the organization's operating environment that will affect how it pursues its mission
What is the central purpose of the SWOT Analysis
to identify the strategies to exploit external opportunities, counter threats, build on and protect company strengths, and eradicate weaknesses.
What is the goal of internal analysis?
to identify the strengths and weaknesses of the company
What is the central goal of most corporations?
to maximize shareholder returns; doing this requires both high profitability and sustained profit growth.
What is the role of corporate level managers?
to oversee the development of strategies for the whole organization.
What is one of the key challenges managers face? (2)
to simultaneously generate high profitability and increase the profits of the company.
What is the purpose of a goal?
to specify with precision what must be done if the company is to attain its mission or vision.
What is the strategic role of business level managers?
to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses.
How should a company define its business in terms of dimensions? (3)
who is being satisfied (what customer groups); what is being satisfied (what customer needs); and how customers' needs are being satisfied (by what skills, knowledge, or distinctive competencies)
How does the strategy making process end?
with the design of the organizational structure and the culture and control systems necessary to implement the organization's chosen strategy.
What is the ultimate goal of profit-making companies?
Maximizing shareholder value
What is a business model a kind of? (2)
Mental model or Gestalt
Define Net Profit
Net Income After Tax
Defined Competitive Advantage
Occurs when a company's profitability is greater than the average profitability of firms in its industry
What are the principal drivers of shareholder value? (2)
Profitability and Profit Growth
Define Mission
Purpose of the company, or a statement of what the company strives to do
Who is the principal general manager
The CEO
What is the ultimate challenge for most companies?
achieving superior performance relative to rivals
Define Strategy Implementation (5)
The task of putting strategies into action, which includes designing, delivering, and supporting products; improving the efficiency and effectiveness of operations; and designing a company's organizational structure, control systems, and culture.
Define Strategy Formulation
The task of selecting strategies
When will shareholders provide risk capital?
When they believe that managers are committed to pursuing strategies that give them a good return on their capital investment
Which questions should the business definition answer? (3)
What is our business? What will it be? What should it be?
How can managers boost profitability and grow profits? (2)
(1) Use strategies that give their companies a competitive advantage over their rivals (2) Deliver high profitability and sustainable profit growth
Where do the returns of shareholder value come from? (2)
(1) capital appreciation in the value of a company's shares (2) dividend payments.
What are the types of managers? (2)
(1) general managers (2) functional managers
What determines the profitability and profit growth of a company? (2)
(1) its relative success in its industry (2) the overall performance of its industry relative to other industries
What interrelated environments should be examined when undertaking an external analysis? (3)
(1) the industry environment in which the company operates (2) the country or national environment (3)the wider socioeconomic or macroenvironment
What are the three main levels of management?
* Corporate * Business * Functional
Where are general managers found in the main levels of management?
*Corporate *Business But roles differ depending on their responsibility
What does a business model encompass the totality of a company? (11)
*Select its customers. *Define and differentiate its product offerings. *Create value for its customers. *Acquire and keep customers. * Produce goods or services. * Lower costs. * Deliver those goods and services to the market. * Organize activities within the company. * Configure its resources. * Achieve and sustain a high level of profitability. * Grow the business over time.
What are the component of a mission statement?
1. Mission 2. Vision 3. Values 4. Statement of major goals
What are the main steps of the formal strategic planning process? (5)
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.
What are the main characteristics of well constructed goals? (4)
1. They are precise and measurable. 2. They address crucial issues. 3. They are challenging but realistic 4. They specify a time period in which the goals should be achieved, when that is appropriate.
What is the foundation of strategic thinking? (3)
1. external analysis 2. internal analysis, 3. strategic choice.
Why is Maximizing shareholder value the ultimate goal for profit making companies? (2)
1. shareholders provide a company with the risk capital that enables managers to buy the resources needed to produce and sell goods and services. 2. shareholders are the legal owners of a corporation, and their shares represent a claim on the profits generated by a company.
Define " the industry environment in which the company operates" (6)
Analyzing the industry environment requires an assessment of the competitive structure of the company's industry, including the competitive position of the company and its major rivals It also requires analysis of the nature, stage, dynamics, and history of the industry.
Define "the wider socioeconomic or macroenvironment" (6)
Analyzing the macroenvironment consists of examining macroeconomic, social, government, legal, international, and technological factors that may affect the company and its industry
Define Multi divisional Company
Competes in several different businesses and has a separate self contained division to manage each
Who can be viewed as the agents of shareholder?
Corporate-level managers, and particularly the CEO
What is associated with high performance? (4)
Deep respect for the interests of customers, employees, suppliers, and shareholders
What does the internal analysis focus on?(3)
Focuses on reviewing the resources, capabilities, and competencies of a company.
Define Strategic Leadership
How to most effectively manage a company's strategy-making process to create competitive advantage.
Define Competitive Advanatge
If a company's strategies result in superior performance
When is competitive advantage greater?
The higher its profitability relative to rivals
Who is the head of the business unit division?
The principal general manager at the business level, or the business-level manager
How can a company make a positive return on invested capital? (2)
Using its capital efficiently and effectively
Define Company
a collection of functions or departments that work together to bring a particular good or service to the market.
What kind of link do corporate level manager provide?
a link between the people who oversee the strategic development of a firm and those who own it (the shareholders).
Define Business Model
a manager's conception of how the set of strategies his company pursues should mesh together into a congruent whole, enabling the company to gain a competitive advantage and achieve superior profitability and profit growth.
Define Business Unit
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.
What does the first step of the planning process begin with?
a statement of the corporate mission and major corporate goals. shaped by the existing business model of the company.
Define "the country or national environment
analyzing the industry environment also means assessing the impact of globalization on competition within an industry
Define General Manager
bear responsibility for the overall performance of the company or for one of its major self-contained sub units or divisions
Why do functional managers provide most of the information that makes it possible for business- and corporate-level managers to formulate realistic and attainable strategies?
because they are closer to the customer than is the typical general manager, functional managers themselves may generate important ideas that subsequently become major strategies for the company.
How can the strategic leaders manage the strategy-making process?
by formulating and implementing strategies that enable a company to achieve a competitive advantage and superior performance.
What are long term goals related to? (5)
details as employee and capital productivity, product quality, innovation, customer satisfaction, and customer service.
When was the self-service supermarket business model developed
developed by grocery retailers in the 1950s
What is a functional manager's sphere of responsibility?
generally confined to one organizational activity
What is profitability the result of? (2)
how efficiently and effectively managers use the capital at their disposal to produce goods and services that satisfy customer needs.
How can a company grow its profits? (5)
if it sells products in markets that are growing rapidly, gains market share from rivals, increases the amount it sells to existing customers, expands overseas, or diversified profitably into new lines of business.
What did Walmart's innovation result in?(4)
in higher productivity and lower costs than its rivals, which enabled the company to earn a high profit while charging low prices.
What does a company do if it provides several different kinds of goods or services?
it often duplicates these functions and creates a series of self-contained divisions to manage each different good or service.
Define Vision
lays out some desired future state; it articulates, often in bold terms, what the company would like to achieve.
What does competitive advantage lead to?
lead to higher profit growth than that shown by rivals.
How is The return on invested capital (ROIC) that a company earns defined as?
net profit over the capital invested in the firm (profit/capital invested).
What do the corporate level of management occupy?
occupy the apex of decision making within the organization.
Why do most companies operate with goals?
profitability and profit growth.
What do shareholders want to see and what must managers deliver?
profitable growth: that is, high profitability and sustainable profit growth.
Define Mission Statement
provides the framework or context within which strategies are formulated.
Define Functional Manager (5)
responsible for supervising a particular function, that is, a task, an activity, or an operation, such as accounting, marketing, research and development (R&D), information technology, or logistics.
Define Profitability
return that it makes on the capital invested in the enterprise.
Define Shareholder Value
returns that shareholders earn from purchasing shares in a company.
Why are values seen as the bedrock of a company's organizational culture? (3)
set of values, norms, and standards that control how employees work to achieve an organization's mission and goals.