Chapter 1
The Strategist Follows a Three-step Process (AFI):
1. Analyze the external and internal environments. 2. Formulate an appropriate business and corporate strategy. 3. Implement the formulated strategy through structure, culture, and controls.
What are the 5 steps of Stakeholder Impact Analysis?
1. Who are our Stakeholders? 2. What are their interests or claims? 3. What opps or threats do they present? 4. Economic, legal, ethical, phil. responsibilities? 5. What should we do to address these concerns?
About _____% of a firm's profitability depends on the industry
20
A firm's strategy (firm effects) can explain up to ______% of its performance
55
For a strategist, which of the following is not an implication of effective strategic management? The difference between a firm's success and failure lies in its strategy. It is necessary to maintain an awareness of key stakeholders and how they can affect or be affected by managerial actions. A firm's performance is determined by a set of independent factors, which includes firm and industry effects. The principles of strategic management can be applied universally to all organizations.
A firm's performance is determined by a set of independent factors, which includes firm and industry effects. Firm and industry effects are interdependent. Both are relevant in determining firm performance.
Corporate Social Responsibility (CSR):
A framework to recognize and address economic, legal, social, and philanthropic expectations
Legitimacy
A stakeholder has a legitimate claim when it is perceived to be legally valid or otherwise appropriate.
Urgency
A stakeholder has an urgent claim when it requires a company's immediate attention and response
Power
A stakeholder has power over a company when it can get the company to do something that it would not otherwise do.
What are the three elements of strategy?
AFI Analysis, Formulation, Implementation
Diagnosis of the competitive challenge =
Analysis
Performance of two or more firms at the same level
Competitive Parity
Benefits of Effective Stakeholder Management:
Cooperation and information availability Lowered costs Greater organizational adaptability and flexibility More predictable and stable returns Stronger reputation
External stakeholders:
Customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels
Examples of Industry effects:
Entry and exit barriers Number and size of companies Types of products and services offered
Guiding policy to address the competitive challenge =
Formulation
Which of the following reasons justifies the view that functional managers should be allowed to initiate strategic initiatives based on autonomous actions?
Functional managers are much closer to the final products, services, and customers than corporate- or business-level managers.
Strategy is not...
Grandiose statements of desire A failure to face a competitive challenge Operational effectiveness, competitive benchmarking, or other tactical tools
Global strategy:
How and where should the firm compete: local, regional, national, or international?
Business strategy:
How should the firm compete? cost leadership, differentiation, or integration?
A set of coherent actions to implement the firm's guiding policy =
Implementation
Stakeholder Strategy:
Managing stakeholders in order to gain and sustain competitive advantage Ex: Target
Threadless:
Online design community and apparel store Let consumers "work for them" Community members vote on which t-shirt designs Customers play a critical role Idea generation, design, marketing, sales
Which of the following statements should ideally reflect a firm's strategy for competitive advantage?
Our aim is to create superior customer value while controlling costs. Grandiose statements are not strategy; they provide little managerial guidance and frequently fail to address the economic fundamentals.
Which of the following scenarios best illustrates a good stakeholder strategy?
PA Corp. distributes only 70 percent of its annual profit after taxes to shareholders, while the remaining is distributed among employees and the local community, and invested for further research.
The Pyramid of Corporate Social Responsibility:
Philanthropic Ethical Legal Economic
Managers must note three stakeholder attributes:
Power Legitimacy Urgency
What are the rewards of superior value creation and capture?
Profitability Market share
Companies with a good strategy....
Provide products/services at an affordable price Make a profit Benefit both parties Make society better
Strategic Positioning:
Staking out a unique position within an industry to provide value to customers, while controlling costs
Internal stakeholders:
Stockholders, employees (including executives, managers, and workers), and board members
The ability to outperform competitors or the industry average over a prolonged period of time
Sustainable Competitive Advantage
Strategy is the art and science of success and failure
TRUE
Target Corporation
Target Corporation has gathered numerous awards that reflect its strong relationship with its stakeholders. It has been named on lists such as best places to work, most admired companies, most ethical companies, best in class for corporate governance, and grassroots innovation
Firm effects are a more important factor in determining firm performance than external environment forces
True
If any stakeholder withholds participation in the firm's exchange relationships, it can negatively affect firm performance
True
Trust between corporations and society have deteriorated because of black swans
True (Real Estate Bubble: 2008 financial crisis)
Competitive Disadvantage:
Underperformance relative to other competitors in the same industry or the industry average
Corporate strategy:
Where should the firm compete? industry, markets, and geography?
Competitive Advantage:
a firm that achieves superior performance relative to other competitors in the same industry or the industry average
Strategy:
a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors
Strategic Management:
an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage (AFI Framework)
To assess competitive advantage, you have to compare a firm's performance to a ____________________
benchmark (industry average)
Stakeholders have a vested ________ or ______________ in the performance and continued survival of the firm.
claim interest (internal vs. external)
The greater the difference between value creation and cost, the greater the firm's economic __________________ and the more likely it will gain _______________ ___________________
contribution competitive advantage
Formulation is accomplished through a strategy formulation, resulting in the firm's _______________, ______________, and ________________ strategies
corporate business functional
Competitive advantage has to come from performing different activities or performing the same activities _______________ than rivals
differently (Ex: Walmart as a cost leader)
A firm is embedded in an _______________ relationship with internal and external stakeholders.
exchange
Firm effects:
firm performance that is attributed to managerial actions
Stakeholder strategy is an integrative approach to managing a diverse set of stakeholders effectively in order to
gain and sustain competitive advantage.
The best example of a firm's external stakeholder is a(n) shareholder who has invested money in the firm but is not employed board member from a wholly-owned foreign subsidiary of the firm government agency that regulates the prices of products employee of the firm who is responsible for a contract project
government agency that regulates the prices of products manufactured by the firm.
Today, the metaphor of a black swan describes the high impact of a highly ____________ event.
improbable
Analysis is accomplished through a strategy analysis of the firm's ______________ and ____________ environments
internal external
Managers should try to transform threats into _____________________
opportunities
Competitive advantage is always _____________, not absolute
relative
To achieve superior performance, companies compete for _________________
resources
The Threadless business model translates market research and design into quick ___________.
sales Threadless has sold every T-shirt it has printed
A core tenet of stakeholder strategy is that a
single-minded focus on shareholders alone exposes a firm to undue risks that can undermine economic performance and can even threaten the very survival of the enterprise.
If a company wants to gain a competitive advantage in a highly competitive industry, it should ideally execute an integrated cost-leadership and differentiation position. stake out a unique position within the industry provide goods or services similar to its competitors at higher prices. copy the strategies of other firms through competitive benchmarking.
stake out a unique position within the industry. The key to successful strategy is to combine a set of activities to stake out a unique position within an industry. Competitive advantage has to come from performing different activities or performing the same activities differently than rivals are doing. Competing to be similar but just a bit better than a competitor is likely to be a recipe for cutthroat competition and low profit potential.
BlueStainless Corp. has been able to gain and sustain a competitive advantage due to its strong relationship with its employees, customers, suppliers, and local communities. The company believes in lifetime employment and ensures that its employees grow along with the company. Investors are more than satisfied with the returns on their investments. Also, 3 percent of the company's profit is spent on community development. With initiatives like these, customers feel privileged to associate themselves with BlueStainless products. This scenario best illustrates the implementation of a
stakeholder strategy
Which of the following stages of the strategic management process involves an evaluation of a firm's external and internal environments? strategy implementation strategy control strategy formulation strategy analysis
strategy analysis
Industry effects describe the underlying economic _________________ of the industry and are determined by elements common to all industries
structure
Operational effectiveness, competitive benchmarking, and other tactical tools support competitive strategy, but are not sufficient to ___________ it.
sustain
strategic positioning requires managers to make ______________
trade-offs
The key to successful strategy is the combination of activities for a __________ position in an industry
unique
Strategy is about creating superior ____________
value