MGT320 Exam 2 Notes review

Principles of Strategic Positioning:

• Strategy is the creation of a unique and valuable position • Strategy requires trade-offs in competing • Strategy involves creating a fit among activities

Vision Statement:

"What do we want to become?" A vision statement is an organization's declaration of its mid-term and long-term goals, stating what they want to become in the future. Vision statements act as a goal for a company to strive toward. Vision statements are often confused with mission statements. Best examples of inspiring vision statements: Amazon: "Our vision is to be earth's most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online." Ben & Jerry's: "Making the best ice cream in the nicest possible way."

Mission Statement:

"What is our reason for being?" Ex: To provide excellent food to customers quickly, Ex: "To empower creators to make their best work and get it in front of the audience they deserve." Ex: "To connect the world's professionals to make them more productive and successful." Ex: "To give people the power to share and make the world more open and connected." A mission statement is a concise explanation of the organization's reason for existence. It describes the organization's purpose and its overall intention. The mission statement supports the vision and serves to communicate purpose and direction to employees, customers, vendors and other stakeholders.

Levels of Strategy:

(Top) 1. Corporate-Level Strategy: What business or businesses should we be in? - Corporation 2. Business-Level Strategy: How should we compete in this industry? - Electronic Components Unit - Services Unit - Retail Unit 3. Functional-Level Strategy: How can business functions support the business-level strategies? - Finance - Human Resources - Operations - Marketing and Communications

Video: Are we in control of our own decisions?

- Illusions as a metaphor - Deals with the form at the DMV in different countries: 1. Check the box below if you would like to participate in organ donation or 2. Check the box below if you would like to opt out of organ donation. - The person who designed the form has influence on what option you select - Talks about rational decisions in general: when we look back at our patterns we can see how we are being rational or not

Cost Leadership: (Porter's Competitive Strategies)

- Quadrant 2 - Cost leadership is a business-level strategy employed by companies who wish to gain a competitive advantage by being the lowest-cost producer of a service, production process, or commodity - Ex: Despite its name, Dunkin' Donuts makes more money selling inexpensive coffee than it does from selling donuts. The coffee is often advertised as costing under a dollar, making Dunkin' Donuts a low-priced alternative to Starbucks.

Focused Differentiation: (Porter's Competitive Strategies)

- if price is on the x plane from low (left) to high (right) and market size on the y from narrow (bottom) to broad (top) - quadrant four - A focused differentiation strategy requires the business to offer unique features to a product or service, and it must fulfill the requirements of a niche or narrow market. - Ex: Focused differentiation allows you to target one or all market segments and provide custom products for each. Coca-Cola, with its Diet, canned, and bottled colas, is a focused differentiation strategy example that serves three distinct market segments.

Differentiation: (Porter's Competitive Strategies)

- quadrant one represent in Porter's Competitive Strategies, if price is on the x plane from low (left) to high (right) and market size on the y from narrow (bottom) to broad (top) - Your differentiation strategy is the way in which you make your firm stand out from otherwise similar competitors in the marketplace. Usually, it involves highlighting a meaningful difference between you and your competitors. And that difference must be valued by your potential clients - Ex: Differentiation strategy allows a company to compete in the market with something other than lower prices. For example, a candy company may differentiate their candy by improving the taste or using healthier ingredients.

Cost-Focus: (Porter's Competitive Strategies)

- quadrant three represent in Porter's Competitive Strategies, if price is on the x plane from low (left) to high (right) and market size on the y from narrow (bottom) to broad (top). - A cost focus strategy is when an organization tries to attract potential customers solely based on pricing. Organizations that employ this strategy try to beat their rivals' prices for the least value for their goods on the market. Organizations that apply this method frequently target a definite market segment - Ex: A bar or restaurant that attempts to improve table turnaround time (catering to more customers who remain for a shorter time rather than welcoming people to sit for longer hours) is an example of a cost focus strategy.

Individual Decision Making BIASES: This is a general problem we all make decisions and are bias.

1. Availability: The idea that we use information that is readily available to make judgments. If we have the information available to us in our minds then that's what we use to make decisions, but there is probably more info that isn't available to us and we are missing that information. 2.Representativeness: Tendency to generalize from a small sample or single event and think that's what's going to happen every time or use that information as if that's all you need to make that decision. 3. Confirmation: When we try to seek information that supports our point of view and we discount anything that disagrees with our point of view. 4. Sunk-Cost: When managers think about all the money they or others have spent and decide that it is too costly to abandon the project even though information exists that they shouldn't. 5. Anchoring and Adjustment: Tendency to make decisions on an initial figure which may or may not be a good figure. Ex: Negotiating with a car salesman and getting the price down and you feel good, but you could still be paying an overpriced amount. 6. Overconfidence: When people use subjective confidence in their decisions making is greater than what they actually know or have. 7. Hindsight: The tendency of us to look back and think things are more predictable than they actually were. Ex: I knew it all along, I knew that's how it would go. 8. Framing: Tendency of decision makers to be influenced by the way the situation or problem is presented to them. Ex: are you hearing that there is a 90% survival rate or that there is a 10% fatality rate? 9. Escalation of Commitment: Decision makers increase their commitment to projects even though there is negative information about them, they want to continue w the project because they have already moved forward with it. They are committed to the project even if there is information showing they should leave the project behind. 10. Categorical Thinking: The tendency of decision makers to classify people and information based on observed characteristics. Ex: Putting people into catagories like sterotypes.

Models of Strategy:

1. Diversification: - Related Diversification; Unrelated Diversification; Vertical Integration 2. Porter's Five Forces: - Entrants; Supplier Power; Buyer Power; Substitutions; Competitors 3. Porter's Competitive Strategies: - Cost Leadership; Differentiation; Cost-Focus; Focused Differentiation

Planning Fundamentals: - Mission - Vision Values Statements

1. Mission Statement: -> "What is our reason for being?" 2. Vision Statement: -> "What do we want to become?" 3. Values Statement: -> "What values do we want to emphasize?" 4. Strategic Planning: -> Done by top managers for the next 1-5 years. (Pointed down arrow for: Goals and Action plans) 5. Tactical Planning: -> Done by middle managers for the next 6-24 months. (Pointed down arrow for: Goals and Action plans) 6. Operational Planning: Done by first line managers for the next 1-52 weeks. (Pointed down arrow for: Goals and Action plans)

Principal Functions of a Manager: The work Environment, Ethics, and Global Management

1. Planning -> - You set goals and decide how to achieve them. 2. Organizing -> - You arrange tasks, people, and other resources to accomplish the work. 3. Leading -> - You motivate, direct, and otherwise influence people to work hard to achieve the organizations goals. 4. Controlling -> - You monitor performance, compare it with goals, and take corrective action as needed.

Substitution: (Porter's Five Forces)

A substitute, or substitutable good, in economics and consumer theory refers to a product or service that consumers see as essentially the same or similar-enough to another product. Put simply, a substitute is a good that can be used in place of another. Ex: Let's take a threat of substitutes example: You may be someone who enjoys coffee. When your doctor tells you to lay off the caffeine, you may consider switching to flowering tea or something similar. This creates the threat of substitutes products or services you can encounter. Ex: Butter vs margarine, Physical books vs e-books, Sandals vs flip-flops, Earrings vs necklaces

Competitors: (Porter's Five Forces)

According to this framework, competitiveness does not only come from competitors. Rather, the state of competition in an industry depends on five basic forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and existing industry rivalry

Individual Decision-Making Style Tolerance for ambiguity: goes along the Y dimension. This is an individual difference in terms of how much people need structure and control. People with a HIGH tolerance for ambiguity are less in need of certainty and control. People with a LOW tolerance for ambiguity need there to be a lot of structure and control in their lives. Value Orientation: Along the X axis. This is focuses on whether a person focuses on tasks and technical concerns or do they focus more on people and social concerns? People tend to lean to one over another.

Analytical: - Like to consider more information and alternatives, careful decision makers who take longer to make decisions, but they also tend to overanalyze a situation. - HIGH tolerance for ambiguity - Task and technical concerns Directive: - Efficient, logical, practical, and systematic in their approach to solving problems, and they are action oriented and decisive and like to focus on facts. - LOW Tolerance for ambiguity - Task and technical concerns Conceptual: - Take a broad perspective to problem solving and like to consider many options and future possibilities, have particular difficulty with well- structured problems. - HIGH Tolerance for ambiguity - People and social concerns Behavioral: - Enjoy social interactions and opinions openly exchanged, supportive, receptive to suggestions, show warmth and prefer verbal to written information, tendency to avoid conflict and overly concerned about others. - LOW Tolerance for ambiguity - People and social concerns For individual decision-making, the best way to overcome barriers would be awareness of the barriers, including self-awareness; for group decision-making, that individual awareness along with the group problem-solving techniques would be potential ways of overcoming problems.

Rational Model of Decision Making: Explanations

Assumptions: • Complete information; no uncertainty • Logical, unemotional analysis: We are logical actors making logical decisions. The goal is to be as productive as possible and your going to make the decsion to make you as productive as possible, but in reality we are thinking where might i enjoy working the most and what place might I like the best? • we assume that the best decisions for the organization are being made in general and by the manager: This could be unclear or ambigious. • Hindrances -> Complexity, Time and Money Constraints, Individual Differences, Imperfect Information; Too Much Information; Difference Priorities; Conflicting Goals. There are many barriers to rational decisions making - in addition to your notes, the biases are also barriers; the downsides of group decision-making (e.g., satisficing, groupthink) are also barriers.

Why is it good to have non rational models in decison making?

Because it is impossible to always use rational decsion making when making a decision. Nonrational: decisions are made faster using fewer resources.

Nonrational Models: More realistic, what is actually happening in the organizations

Bounded Rationality, Hubris, and Satisficing: - SATISFACTORY IS GOOD ENOUGH: We CANNOT go through a full rational decision making process everytime that we need to make a decision. Intuition: - IT JUST FEELS RIGHT

Buyer Power: (Porter's Five Forces)

Buyers have the power to influence price and the quantity of products sold. Powerful buyers can bargain on volume or switching costs or they can find substitute products. Price sensitivity also impacts the buyer/seller relationship. Ex: A buyer can bargain with an insurer wanting to increase their premiums if there are plenty of other companies offering the same service cheaper. In fields such as insurance, companies often promote introductory offers for new customers to encourage them to switch loyalties.

Operational Planning:

Done by first line managers for the next 1-52 weeks. (Pointed down arrow for: Goals and Action plans) is what happens when a team or department draws from a company-wide strategic plan and puts it under a microscope.

Tactical Planning:

Done by middle managers for the next 6-24 months. (Pointed down arrow for: Goals and Action plans) Is a written outline of the specific actions you're going to take to address a problem or achieve a goal. It could list the tasks that you'll do yourself, and the tasks you'll assign to employees. Ex: Hire and develop a diverse cohort of new employees and retain them in the long-term. Research salary survey data to determine the compensation of new hires. Ex: Reorganize the business so that it is more closely aligned with the industry. Ex: Double the number of marketing assistants by the end of Q2

Strategic Planning:

Done by top managers for the next 1-5 years. (Pointed down arrow for: Goals and Action plans) Establishes ongoing practices to ensure that an organization's processes and resources support the strategic plan's mission and vision statement. In simple terms, strategic management is the implementation of the strategy. Ex: Identify date and venue, Develop agenda, Identify and invite speakers, Develop social events, Develop menus, Develop invitations

First-line Management and team leaders:

First-line Management and team leaders: Unit managers, first-line supervisors. -> Operational Planning: 1-52 weeks. -> Direct daily tasks of non managerial personnel; decisions often predictable, following well-defined set of routine procedures.

SMART GOALS EXAMPLE:

For a company: A florist could have a goal of increasing their flower sales (results-oriented) by 10% (measurable) within one year (targeted) by expanding into the college event market (specific). The 10% number appears attainable (e.g., it's not 100% or something extreme). For a person: a person who does well on standardized testing and is committed to exam preparation could have a goal of improving his/her chances of getting accepted (Results-oriented) the University of Michigan Business School (Specific) by scoring a 770 (Measurable) on the Graduate Management Admission Test by December of 2022 (Target Date). The goal is attainable because the person is good at standardized exams and committed to exam preparation.

Intuition: (Nonrational Models)

IT JUST FEELS RIGHT Intuitive decision making is the way people make decisions naturally, without the use of formal tools and procedures. Ex: Typical examples where intuition can play an important role in making decisions are: Choosing your life partner, selecting the right car to buy, evaluation of a job, decision about an education, selecting a meal when eating out, selecting the next book to read, decide how to dress for today. We make choices using unconscious feelings about what is right. We are doing what our gut is telling us to do. Two Ideas under Intuition: 1. Holistic Hunch: Based on explicit tasks and knowledge that we have about something. Ex: Sometimes we get a feeling about what we should do because we know a lot about the context, even though we might not know every specific detail about that thing we are able to intuit what might be the right decision. 2. Otimated Experience: Intuition is based entirely on feelings and involuntary emotional response to a decision that we have to make.

Middle Management:

Middle Management: Functional managers, product-line managers, department managers. -> Tactical Planning: 6-24 months -> Implement polices and plans of top management, supervise and coordinate activities of first-line managers below, make decisions often without base of clearly defined information procedures.

New entrants: (Porter's Five Forces)

New entrants are businesses that want to enter your market. Your power is affected by the ability of others to enter the market. New competitors can easily enter your market when there are low entry costs, few economies of scale, no knowledge-intensity and little protection of key technologies. Ex: An example of the threat of new entrants porter devised exists in the graphic design industry: there are very low barriers to entry. As new competitors flood the marketplace, have a plan to react before it impacts your business.

Basic Terms

Planning: setting goals and deciding how to achieve them. Strategy: setting long term goals and direction. 1. Establish the mission and vision and values. 2. Assess the current reality. 3. Formulate the grand strategy and strategic, tactical, and operational plans. 4. Implement the strategy 5. Maintain strategic control.

Rational/Nonrational Decision Making Video

Rational: - What managers should do in decision making Nonrational: - More of a descriptive model that talks about what actually happens when managers and people make decisions. Individual: - When you make a decision on your own - When a manager makes a decision on their own Group: - Make a decision as part of a group

Related Diversification: (Diversification)

Related diversification occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries. Because films and television are both aspects of entertainment, Disney's purchase of ABC is an example of related diversification. Ex: Because films and television are both aspects of entertainment, Disney's purchase of ABC is an example of related diversification.

Rational Model of Decision Making: also known as the classical model - This is about how managers should make decisions

Stage 1: - Identify the problem or opportunity. Stage 2: - Think up alternative solutions. Stage 3: - Evaluate alternatives and select a solution. Stage 4: - Implement and evaluate the solution chosen. Example: Stage 1: Where am I going to do my work today? Stage 2: I could work in a public space like Starbucks, in my office, work at CSU, or I could work at home in my basement. Stage 3: Think about what kind of equipment I might need- this would help determine if the public option would actually work. Where will I be the most effective and enjoy getting the most work done? Stage 4: Did I make a good choice? We CANT always follow a rational decision making model because the reality is we often don't have all the information when making decisions.

Rational Model of Decision Making: Scenario 1 You are part of a student club that has been having trouble attracting new members. You need to decide on a way to increase student membership or the club may no longer exist. Mainly, student dues keep the club running and without sufficient membership, you can't support the club. - with your group, use the rational decision-making model to determine a solution to the problem (complete Steps 1 through 3). You have surveyed students and found out that they have the following reasons for not joining the club: 1) the dues are too high, 2) the meeting nights are inconvenient, 3) the culture of the student club feels elitist, 4) the culture of the club is not welcoming, 5) the value of the club is unclear to the students, and 6) the meetings are boring. You also know that it costs about $2500 per semester to run the club and current student dues are $100 per student.

Stage 1: What is the problem? Not enough money Stage 2: Potential solutions? Raise dues, reach out to parents of members, increase membership...could be thousands of potential solutions Stage 3: Select a solution? Any of these might solve the problem

Models of Strategy: Boston Consulting Group (BCG) Matrix

Stars: Have high growth, high market share, definite keepers. Question Marks: Risky new ventures, some will become stars, some dogs. Dogs: Have low growth, low market share, should be gotten rid of. Cash Cows: Have slow growth but high market share, income finances stars and question marks.

Supplier Power: (Porter's Five Forces)

Suppliers have the power to influence price, as well as the availability of resources/inputs. Suppliers are most powerful when companies are dependent on them and cannot switch to other suppliers because of higher costs or lack of alternative sources. Ex: refers to the pressure that suppliers can put on companies by raising their prices, lowering their quality, or reducing the availability of their products

Ethical Decision Making: LOOK AT DIAGRAM IN NOTES

The top reason for CEO departures among americas largest companies is unethical behavior. They end up leaving because they get in trouble or someone finds out what they are doing unethical. When we make decisions we are always making assumptions and operating on limited information.

Planning Types:

Top Management: -> Strategic Planning Middle Management: -> Tactical Planning First-line Management and team leaders: -> Operational Planning

Top Management:

Top Management: Chief Executive officer, president, vice president, general managers, division heads. -> Strategic Planning: 1-5 years. -> Male long-term decisions about overall direction of organization. Managers need to pay attention to environment outside the organization, be future oriented, deal with uncertain and highly competitive conditions.

Unrelated Diversification: (Diversification)

Unrelated diversification occurs when companies enter a market not similar to their own. In other words, that market does not have any commonalities with the company's industry. With this strategy, companies develop strategic business units Ex: A producer of mens apparel acquiring a maker of golf equipment. Ex: Amazon entering the grocery store business with its purchase of Whole Foods.

Group Decision Making

Upsides: • More knowledge, different views, intellectual stimulation, decision rationale understanding, deeper commitment. Downsides: • A few people dominate, satisficing, goal displacement, groupthink

Vertical Integration: (Diversification)

Vertical integration is a strategy that allows a company to streamline its operations by taking direct ownership of various stages of its production process rather than relying on external contractors or suppliers. Ex: For example, Netflix's shift from licensing shows and movies from major studios to producing its own original content is an example of vertical integration. Ex: A good example of vertical integration is: a crude oil refiner purchasing a firm engaged in drilling and exploring for oil. A vertical integration strategy can expand the firm's range of activities: backward into sources of supply and/or forward toward end users.

Values Statement:

What values do we want to emphasize?" Ex: To treat others as you want to be treated are the core, guiding principles of an organization; they define what a company believes in and how people in the organization are expected to behave—with each other, customers, vendors and other stakeholders. Ex: Respect: We value everyone and treat people with dignity and professionalism. Integrity: We build trust through responsible actions and honest relationships. Teamwork: We achieve more when we collaborate and all work together.

Decision:

a choice among alternatives.

Satisficing: (Nonrational Models)

holds that managers seek alternatives only until they find one that looks satisfactory, rather than seeking the optimal decision. Ex: Customers often select a product that is good enough, rather than perfect, and that's an example of satisficing. A limitation of satisficing is that there is no strict definition of an adequate or acceptable outcome. elementally what happens in this case because of these things. Managers are going to seek alternatives until they find one that is satisfactory, but not necessarily optimal. This is not a bad thing, sometimes we don't have the time or money to go through a complex process to make a decision.

Hubris: (Nonrational Models)

is the characteristic of excessive confidence or arrogance, which leads a person to believe that they may do no wrong. The overwhelming pride caused by hubris is often considered a flaw in character. Ex: It means arrogance and excessive pride. This can be something a character feels internally, but it usually translates to the character's actions. A modern, real-life example of hubris might be a politician who thinks he's too beloved to lose an election and chooses to skip campaigning. Refers to those who have an extreme or inflated sense of pride, certainty, or confidence. Some people are overly confident and that affects how they make decisions. - not rational

Bounded Rationality: (Nonrational Models)

is the theory that consumers have limited rational decision-making, driven by three main factors - cognitive ability, time constraint, and imperfect information. For example, when ordering at a restaurant, customers will make suboptimal decisions because they feel rushed by the waiter. Refers to decision-makers being limited by numerous constraints, Their cognitive capacity is limited. There is only so much information that you can bring in to make a decision, even when we are operating rationally it is still bounded by a lot of constraints.

Decision Making:

• Process of identifying and choosing alternative courses of action. Ex: Where should I do my work? at home, in the office, starbucks, etc. Then you think about what the reasons are that you might choose one of the locations. Then make a decision. • Two dimensions we will consider: - Rational & Nonrational - Individual & Group

Group Problem Solving Techniques

• Seeking Consensus - Agreement to support a final decision. • Brainstorming - Idea generation process. • Devil's Advocacy - Assign someone the role of critic. • Dialectic Method - Structured dialogue or debate of opposing views. • Project Post-Mortems - Review of recent decisions.

Planning and Strategy - SMART Goals

• Specific: clearly defined or identified. • Measurable: able to be measured. • Attainable: able to be attained; achievable. • Results-Oriented: term used to describe an individual or organization that focuses on outcome rather than process used to produce a product or deliver a service. • As such, a number of processes are used where the most effective and economical process is identified. • Targeted/Target Dates: the date set for an event or for the completion of a project, goal, or quota.