Business Strategy & Policy Test 1
Characteristics of a Vision Statement
"The 5-out-of-5 Test": 1) clear; 2) futuristic; 3) concise; 4) unique; 5) inspiring
There is a fairly clear distinction between the external and the internal environment, yet a gray area still exists.
True
Unlike with cost leadership where a firm examines how to reduce costs all along its value chain, with differentiation the firm looks to maximize value all along its value chain.
True
Organizational Culture
a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaption and internal integration, and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel
Related Diversification
adding new but related products
Unrelated Diversification
adding new, unrelated products
Blue Ocean Strategy
aims to target a new market where competition is not yet present, thus creating a "blue ocean" as opposed to a red ocean where many firms are competing often on price, and the gains of one firm are often at the expense of another
Mission Statements
an enduring statement of purpose that distinguishes one business from other similar firms
Internal Strengths and Weaknesses
an organization's controllable activities that are performed especially well or poorly
Benchmarking
analytical tool used to determine whether a firm's value chain is competitive compared to those of rivals and thus conducive to winning in the marketplace -entails examination of value chain activities across an industry to determine "best practices" among competing firms (pg. 143)
Competitive Advantage
any activity a firm does especially well compared with activities done by rival firms, or any resource a firm possess that rival firms desire
Comparing Business and Military Strategy
-Business Strategy: formulated, implemented, and evaluated with an assumption of competition; multiple winners -Military Strategy: based on an assumption of conflict; one winner
The persons primarily responsible for having effective strategies at the various levels include:
-CEO at corporate level -president of segments at divisional level -CFO, CIO, HRM, CMO, and other executives at functional level -plant manager, regional sales manager, etc. at operational level
External Factor Evaluation (EFE) Matrix
-allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information -provides an empirical assessment of how well a firm is handling external factors overall, including the firm's effectiveness at capitalizing on opportunities and minimizing threats
Vision Statement
-answers the question "what do we want to become?" -often considered first step in strategic planning
Process of developing vision and mission statements
-as many managers as possible should be involved -select several articles and ask all managers to read them as background info -ask managers to individually prepare vision and mission statements for the organization -facilitator or top managers should merge statements into a single document and distribute the draft statements to all managers -then, request for modifications, additions, and deletions is needed -pg. 53
Mission Statement
-declaration of an organization's "reason for being" -declaration of attitude and outlook -answers "What is our business?" -foundation for priorities, strategies, plans, and work assignments
Pitfalls in Strategic Management
-involved, intricate, and complex process that takes an organization into uncharted territory -does not provide a ready-to-use prescription for success -pg. 18
Five Types of Financial Ratios
-liquidity (how is the firm's cash position), -leverage (how is the firm's debt position), -activity (how efficient is the firm's operations), -profitability (how is the firm performing), -growth (is the firm meeting shareholders' expectations)
Five Characteristics of Objectives
-quantitative: measurable -understandable: clear -challenging: achievable -compatible: consistent vertically and horizontally in a chain of command -obtainable: realistic
Long-Term Objectives
-specific results that an organization seeks to achieve in pursuing its mission -more than one year
Steps in Developing an IFE Matrix
1) Develop a full and narrow list of key internal factors 2) Assign weights to key internal factors 3) Assign ratings to key internal factors 4) Obtain weighted scores 5) Obtain total weighted scores
Characteristics of a Mission Statement
1) broad in scope; 2) concise; 3) inspiring; 4) identifies the utility of a firm's products; 5) reveals that the firm is socially responsible; 6) reveals that the firm is environmentally responsible; 7) includes the nine components; 8) reconciliatory; 9) enduring but never cast in stone; 10) attracts customers
Being the first mover can be an excellent strategy when such actions:
1) build a firm's image and reputation with buyers; 2) produce cost advantages over rivals in terms of new technologies, new components, new distribution channels; 3) create strongly loyal customers; 4) make imitation or duplication by a rival difficult or unlikely
What 9 components should a mission statement include?
1) customers; 2) products or services; 3) markets; 4) technology; 5) concern for survivial/growth/profits; 6) philosophy; 7) distinctive competence; 8) concern for public image; 9) concern for employees
Steps to develop an EFE Matrix
1) develop a full and narrow list of key external factors; 2) assign weights to key external factors; 3) assign ratings to key external factors; 4) obtain weighted scores; 5) obtain total weighted scores
Reasons why many mergers and acquisitions fail
1) integrations difficulties up and down the two value chains; 2) taking on too much new debt the target firm owes or to buy the target; 3) inability to achieve synergy; 4) too much diversification; 5) difficult to integrate different organizational cultures; 6) reduced employee morale due to layoffs and relocations (pg. 149)
Five Basic Activities of Marketing
1) marketing research and target market analysis 2) product planning 3) pricing products 4) promoting products 5) placing or distributing products
Nonprofit organizations are similar to for-profit companies in virtually every respect except for two major differences:
1) nonprofits do not pay taxes; 2) nonprofits do not have shareholders to provide capital
Five Forces of the Porter's Model
1) rivalry among competing firms; 2) potential entry of new competitors; 3) potential development of substitute products; 4) bargaining power of suppliers; 5) bargaining power of consumers
Benefits of being the first mover:
1) secure access and commitments to rare resources; 2) gain new knowledge of critical success factors and issues; 3) gain market share and position in the best locations; 4) establish and secure long-term relationships with customers, suppliers, distributors, and investors; 5) gain customer loyalty and commitments; 6) gain patent protection early
Core Values Statement
specifies a firm's commitment to integrity, fairness, discipline, equal employment opportunity, teamwork, accountability, continuous improvement, or other such exemplary attributes
Michael Porter's Two Generic Strategies
strategies allow organizations to gain competitive advantage from two different bases: cost leadership and differentiation
Organic Growth
strategists must consider how well current internal resources match the capabilities needed to grow (4+ percent)
Strategic Management
the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives
First-Mover Advantage
the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms
Strategists
the individuals most responsible for the success or failure of an organization
Value Chain Analysis (VCA)
the process whereby a firm determines the value (price minus cost) of each and all activities that went into producing and marketing a product, from purchasing raw materials to manufacturing, distributing, and marketing those products. (pg. 141)
Combination Strategy
the simultaneous pursuit by an organization of two or more of growth, stability, and retrenchment strategies -can be exceptionally risky if carried too far
Resource-Based View
the view that a firm's internal resources are more important than the external forces in achieving and sustaining competitive advantage
Key External Forces
10 external forces, divided into 5 broad categories: 1) economic forces; 2) social, cutural, demographic, and environment (SCDE); 3) political, governmental, and legal forces; 4) technical forces; and 5) competitive forces
Means for Achieving Strategies
BUILD from within to grow, BORROW from others to grow, BUY others to grow
Benefits of Engaging in Strategic Planning
Financial: significant improvement in sales, profitability, and productivity -Nonfinancial: enhanced awareness of external threats, improved understanding of competitors' strategies, increased employee productivity, reduced resistance to change, and clearer understanding of performance-reward relationships
Types of Strategies
Forward integration, backward integration, horizontal integration, market penetration, market development, product development, related diversification, unrelated diversification, retrenchment, divestiture, liquidation
A mission statement is sometimes called a creed statement, a statement of purpose, a statement of philosophy, a statement of beliefs, a statement of business principles, or a statement "defining our business".
True
Accrediting bodies that audit colleges and universities (such as SACS and AACSB) require continuous strategic planning.
True
An external audit should result in a list of opportunities and threats that an organization is currently facing or will face in the future.
True
Companies are under continual pressure from stockholders to maintain top line (revenues) and bottom line (net income) growth (usually 4%) and pay higher dividends.
True
Effective means of implementing forward integration is franchising.
True
Great firms possess core values that remain fixed and almost never change.
True
In the IFE Matrix, strengths can only be rated a 3 or 4 and the weaknesses can only be rated a 1 or 2 because of the definitions.
True
Long-term objectives should be consistent, usually from 2 to 5 years.
True
The key difference between a CPM and EFE is that a CPM compares firms and an EFE Matrix analyzes how a firm internally is responding to key external issues.
True
Levels of Strategies in small firms
company, functional, and operational
Analytical thinking and intuitive thinking ________________ each other.
complement
Formulation, implementation, and evaluation of strategy activities occur at three hierarchical levels in a large organization:
corporate, divisional or strategic business unit, and functional
Levels of Strategies in large firms
corporate, divisional, functional, and operational
Since mission statements rarely include all nine components, which three components should always be included (according to the professor)?
customers, products or services, and marketing (the next most important ones are employees and distinctive competence)
Annual Objectives
short-term milestones that organizations must achieve to reach long-term objectives
Strategy Formulation
developing a vision and mission, identifying an organization's external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue
External Opportunities and Threats
economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future
Cost Leadership
emphasizes producing standardized products at a low per-unit cost for consumers who are price-sensitive
Key Internal Factors
factors over which the company has some degree of control/influence
Federal, state, county, and municipal agencies and departments are responsible for:
formulating, implementing, and evaluating strategies that use taxpayers' dollars in the most cost-effective way to provide services and programs
Forward Integration
gaining ownership or increased control over distributors or retailers
Called generic strategies because:
generally firms should be mindful it is often best to develop product lines that compete on cost or compete on unique value; it is difficult to compete on both simultaneously
Of the five financial ratios, the three most important to strategy are:
growth, profit, and leverage -activity and liquidity are usually more short-term limited
Quantitative
includes percentages, ratios, dollars, and number to the extent possible
Many nonprofit and governmental organizations outperform private firms and corporations on:
innovativeness, motivation, productivity, and strategic management
The functions of management can be performed best when a firm's strategy and culture are ________________.
integrated
Market Development
introducing present products into new geographic area
Based on past experiences, judgement, and feelings, most people recognize that ____________ is essential to making good strategic decisions.
intuition
Actionable
meaningful and helpful in ultimately deciding what actions or strategies a firm should consider pursuing
Policies
means by which annual objectives will be achieved
Strategies
means by which long-term objectives will be achieved
Actionable-Quantitative-Comparative-Divisional (AQCD) Test
measure of the quality of an internal factor
Porter's Five Forces Model
offers guidance to strategists in formulating strategies to keep rival firms at bay
Internal Assessment Phase of Strategy Formulation
one is trying to identify what strengths and weaknesses an organization might have
Six guidelines indicate when forward integration may be an especially effective strategy:
pg. 133
Why some firms do no strategic planning
pg. 18
Sun Tzu's writings applied in a business sense
pg. 20
Benefits of vision and mission statements
pg. 51-52
Differentiation
producing products and services considered unique to the industry and directed at consumers who are relatively price insensitive
4 P's of Marketing
product, place, promotion, price
Benefits of clearly established objectives include:
provide direction, allow synergy, assist in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and aid in both the allocation of resources and the design of jobs
Retrenchment
regrouping through cost and asset reduction to reverse declining sales and profit
Divisional
relates to the firm's products and/or regions (rather than consolidated) so inferences can be drawn regarding what products and regions are doing well or not
Strategy Implementation
requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed efficiently
Comparative
reveals changes over time
Competitive Profile Matrix (CPM)
reveals how a focal firm compares to major competitors across a range of key factors
Internal Factor Evaluation (IFE) Matrix
reveals key strengths and weaknesses confronting an organization; -vital info. for managers in formulating strategies that capitalize on strengths and mitigate/overcome/improve upon weaknesses
Strategy Evaluation
reviewing external and internal factors that are the bases for current strategies, measuring performance, taking corrective actions
Market Penetration
seeking increased market share for present products or services in present markets through greater marketing efforts
Products Development
seeking increased sales by improving present products or developing new ones
Backward Integration
seeking ownership or increased control of a firm's suppliers
Horizontal Integration
seeking ownership or increased control over competitors
Divestiture
selling a division or part of an organization
Liquidation
selling all of a company's assets, in parts, for their tangible worth
Leveraged Buyout (LBO)
when a firm's shareholders are bought by the company's management and other private investors using borrowed funds
Acquisition
when a large organization purchases (acquires) a smaller firm or vice versa
Hostile Takeover
when a merger or acquisition is not desired by both parties
Joint Venture
when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity and have shared equity ownership in the new entity (pg. 147)
Merger
when two organizations of about equal size unite to form one enterprise
Strategic-Management Model
widely accepted, comprehensive depiction of the strategic-management process (Figure 1-1)
