Strategic Management Test 1 Ch. 1-4

Use of Financial Analysis in Strat. Mgmt

- Identify str. & weaknesses -Diagnose problems (declining profitability, insufficient liquidity, highly leveraged, bad internal mgmt) - Essential comparisons (firm to competitors, firm to itself over time aka trends)

4 Primary responsibilities of the CEO

-design organizational purpose, vision and core values - develop policies, strategies and structure -create an environment for org. learning - serve as a steward (you take responsibility for stakeholders values.. you care about them) for the organization

Value Chain Analysis

1) decide to be the very best in one of these segments. Choose 1 2) Decide to be the very best at 2 of these segments 3) Develop a strong relationship between on of these areas and an external stakeholder.

Agency Theory

Agents- managers with a fiduciary duty to act in the best interests of owners Agency problem - managers maximize their own self-interests at the expense of the owners -high salary CEOs -emphasis on short term performance at expense of future improvements (R&D cuts) - empire for status (M&A) CEO duality

Strategic Management is a process through which organizations

Analyze/ learn from internal and external environments establish strategic direction (purpose) establish strategies that are intended to help and achieve establish goals execute those strategies

Best firms use

Both Strategic Planning, Strategic thinking

Typical corporate governance structure

CEO usually nominates the directors. Pg. 33

Trust is associated with three types of organizational justice

Distributional justice Procedural Justice Interactional justice

Examples of stakeholder based performance measures

Employees -survey of employee happiness - turnover Customers -growth in sales - surveys of customer satisfaction Suppliers - longevity of supplier relationships - existence or absence of supplier-led legal actions Shareholders - shareholder returns - risk associated with returns Community - inclusion on list of socially responsible firms -percent of income donated to community or social causes

Alternative Perspectives on Strategy Development

Environmental determinism Structure content performance model Research Enactment Combination

Ethical behavior in organizations

Ethical dilemmas - occur when the values of different stakeholders are in conflict over a particular issue poor ethical behavior - ppl do not personalize issues - they see the organization as responsible for the problem. increasing ethical behavior -rewards systems should reinforce values -firms may create an ethics compliance program - major decisions should be based on values

Organizational Resource Interconnectedness

Everything is interconnected .. Human Resources, Physical Resources, Financial Resources, General Organizational, Knowledge and Learning Resource

Procedural Justice

Fair decision making process (feeling employee is being heard)

Strategic Thinking used to describe the creative aspects of strategic management:

Focus on strategic intent Long term orientation Consideration of past and present Systems perspective (Stakeholder organization) Ability to seize unanticipated opportunities Scientific approach (Hypotheis testing, take chances)

What makes a resource competitive?

Helps firms difference product Helps firm produce product at a lower cost value does not equal competitive advantage

Stakeholder analysis

Identifying and prioritizing key stakeholders assessing their needs collecting ideas from then integrating this knowledge into the strategic management processes

Human Resources

Managers- CEO and top management and team Employees - recruitment, training programs, rewards systems, Owners/Board of directors - effective corporate governance

Effective strategic leaders

Must master lower level skills before moving to higher level skills 1- capable individual 2- team player 3- organizer 4- effective leader 5- transformational leader

Alternative perspectives on Strategy Development. (Resource based view)

Organization is a bundle of resources Sustainable Competitive Advantage Effective development or acquisition of organizational resources

Chapter 3

Organizational Resources & Competitive Advantages

Knowledge and Learning Resources

Organizational learning leads to strengths in other resource areas : knowledge creation, retention, sharing ,utilization Two types of Knowledge Codified - can be communicated w/ precision through written means. typically not a good source of sustainable comp. adv. Tacit - difficult to describe with words. Better source of sustainable comp. adv.

Business definition for walmart

Products/services - consumers products markets - retail customers, broadly defined functions served - availability of perishable and nonperishable consumer items resource conversion processes - buying, inventory mgmt, distribution, limited service, promotion and advertising.

Commonly used ratios

Profitability - gross profit margin, net profit margin, ROA, RoE Liquidity - Current, Quick Leverage - D/E, Total debt to total assets Activity - Asset turnover, avg collection period, accts receivable turnover, inventory turnover.

Emotional intelligence

Self awareness, self regulation, motivation, empathy, social skill

General Organizational Resources

Some gen. resources are hard to imitate and therefore excellent sources of sustainable comp. adv. : - Organizational reputation - Corporate Brands - Unique configurations of stakeholder relationships (joint ventures, long other contracts and other types of partnerships and alliances.) - Organizational structure and internal systems - organizational culture

Chapter 4

Strategic leaderships and strategic direction

Strategy is

Strategy is a organizational plan of action intended to accomplish goals

Financial Resources

Strong CF, low levels of debt, strong credit, access to low interest capital and reputation for credit worthiness, can increase strategic flexibility (more responsive to new opportunities).

Value Chain Activities pg 27

Supply chain mgmt --> internal operations mgmt --> distribution and location mgmt --> marketing mgmt --> mgmt of post- transaction contacts

Physical Resources

Tangible resources such as machinery, plants and products - easy to imitate, but the processes to create them are not. Locations - competitive clusters can provide advantages to companies and consumers. * counter intuitive - the key is being located right next to your fiercest competitors.

Firm performance

Traditional performance measured as financial performance (ROA, ROE, shareholder returns) - short term mentality -externalities Activities of the firm provide value to a broad spectrum of stakeholders -need a more balanced and complete set of measures - reflect more of the value a firm creates for its stakeholders

How to implement Strategic thinking?

Train managers in strategic thinking Encourage and reward employees for strategic thinking Implement a strategic planning process that incorporates strategic thinking Take risks

Alternative perspectives on Strategy Development. (Stakeholder Perspective)

Value of co- creation *** How to treat people= right strategy= share valuable info, allow for other to create value for you Organization is a network of relationships with stakeholders Stakeholder analysis Stakeholder management

Organizational Resources Leading to Sustainable Competitive Advantage

[Financial, Physical, Human, Knowledge & Learning, Organizational] --> [Valuable, Unique] --> [Appropriate systems in place?, Managers taking advantages of potential] --> [difficult or costly to imitate, no readily available substitute]

human capital (talent) is...

a supplier ... relevant to entertainment, arts ect.

Political and Legal forces

among most significant determinants of organizational success GVT provide and enforce rules in which organizations operate Level of inference from get varies from country to country and industry to industry worldwide trend is words more regulation alliances and treaties among gvt provide another level of complexity in planning

Strategic alliance

any type of cooperative strategy in which frmcombine resources to peruse a common objective

alliance networks

autonomous firms that cooperate due to common interests (orgainzed around hb firms that coordinated info sharing)

Industrial Organizational Economics

based off determinism, study environment and then adapt from for winning strategy.

sustainable development

business growth w/o depletion of the natural environment or dmg society most orgs define in terms of: -tech advances -environment protection -what they are doing for communities and societies in which they operate

Sustainable Competitive Advantage

come from a resource that is valuable in the market, processed by only a small number of firms (rare), and costly or difficult to imitate in the short term.

Stakeholder management

communicating with stakeholders negotiating and contracting with stakeholders managing relationships with them motivating them to behave in way that are beneficial to the organization and its other stakeholders

Functional Strategy formulation

contains the details of how the functional areas such as marketing, operations, finance, research should work together to achieve the business level strategy.

Cooperative strategies with stakeholders

customers- involve in design supplier0 intergate info systems competitors0 joint vntures gvt- gvt sponsorship of research communities0 training programs special intrest apoint rp to internal comitties unions- inclusion of leader financial intermeidaters0 appointment to board

Corporate Strategy formulation refers to

domaine definition or the choice of business areas. usually decided by the CEO and the board of directors

increasing interdependencies

due to the flow if goods and services, knowledge and financial capital across borders. Makes business environment complicated

Key forces ( global economy) that affect all organizations

economic growth intrest rates availability of credit inflation rates foreign exchange rates foreign trade balances

social resposibility

economic responsibilities legal " moral obligations discretionary resp. (putting $ in areas where it has no business. $$ to school in India. $$ to school near workers of the company)

Entry barriers

economies of scale high level of product differentiation high switching costs limited access to distribution channels gvt polocies and regulations that make it hard to compete Existing firms have resources like patents that are hard to duplicate past history of aggressive retaliation to new entrants

competitive parity

everyone has competitive advantage so its no longer competitive

conditions that create advantages for nations

factors of production- uncommon raw materials, special workers, better schools and training Demand conditions-discriminating buyers, trend setters related and supportive industries- best suppliers, firms related to global industry leaders firm strategy, structure, rivalry- customary practices are conductive to success, the most talented managers, strong competition

Distributional justice

fair distribution of value to shareholders

Interactional justice

fairness in the way stakeholders are treated during transactions (Treat with respect)

Organization is a bundle of resources

financial, physical human, knowledge, and learning and general organizational ( structure, systems, culture, reputation, relationships with stakeholders.)

Enactment

firms can, in part, create their environments. (influence- advertising)

Traditional/ contemporary perspective

firms should adapt forces in the external environment when it is unreasonable to try to change the, while being proactive in other areas. Strategy making is a combo of planning and learning. Fares from organizational economics and industry analysis

SAFRAN (a large french aerospace company) group core values

focus on customers innovation responsiveness power of teamwork corporate citizenship

collusion

formal price setting (illegal in US)

non equity strategic alliance

formed through a contract not equity

Worlds markets have been becoming increasingly...

globalized

Top mgmt teams

high ranking leaders -- the C suite Heterogenous top mgmt: -managers with a wide background - high quality decisions - innovation and strategic change - implementation may be more difficult

When to cooperate with external stakeholders

higher propensity to partner with stakeholders that can influence firms outcomes (inc or reduce environmental uncertainty)** ability to influence outcomes results from economic power of particular stakeholder political power network centrality

basic innovation

impacts much more than one product category or industry

Global interconnectedness

increases competition.

increasing interdependencies , economic volatility, Global interconnectedness all make

innovation important

Global perspectives

integrated throughout all aspects of strategic management

Organization is a network of relationships with stakeholders

internal ad external constituencies that have a strong interest in the activities and outcomes of the firm and upon who the organization replies on to achieve its objectives.

Resource based perspective

internal analysis leading to identification of sources of sustainable competitive advantage.

hyper competition

intese competition among firms, often associated with tech innovation.

Three technological forces

inventions innovations basic innovation

Strategic Restructuring

involves a renewed emphasis on what an organization does well, combined with a variety of tactics to revitalize the organization and strengthen its competitive position.

Strategy Implementation

involves creating the functional strategies, symptoms, structures, and processes needed by the organization in achieving strategic ends.

Business Strategy formulation

involves domain direction and navigation or how to compete in a given area. Usually decided by division heads and business unit managers.

equity alliance

joint venture

Strategic thinking

leads to creative solutions and new ideas

Trends and factors for entry in global business environment

major trends: tech advances dramatic inc in globalization opportunities in developing nations Factors: social forces economy political/legal tech industry speciffactors

economic volatility

makes planning more difficult. Interconnections more poroblematic during crisis.

Effective development or acquisition of organizational resources

may be the other most important reason that some organizations are more successful than others.

Mission and vision

mission - what the organization is vision - what the org wants to become. vision often found in mission statement

Traditional view of leadership

most important role of the CEO is to harness the energy, talents, and creativity of organizational members.

inventions

new ideas that are discovered

Does fairness= equality?

no

Strategic Planning

often rigid and unimaginative, with detailed instructions pertaining to every aspect of the process

Combination

organizations typically involved in adaptation and enactment.

Forces that drive industry competition and profitability- porters 5 forces

p.16***

Stakeholder perspectives

part of external analysis and alliance formation

Strategic Direction

pg 34 ** history and inertia is key

Strategic control

refers to the processes that lead ti adjustments in strategic directions, strategies, or the implementation plan when necessary.

innovations

replicated reliably on a meaningful scale )new products or processes)

Strategic Direction

setting long term goals and objectives (such as mission and vision) defines the purposes for which an organization exits and operates (Ethics and Values) STRATEGIC DIRECTION MAY BE CONTAINED , IN PART, IN A FIRMS MISSION AND VISION STATMENTS

Whn rivalry among existing competitors is intense

slow growth high fixed costs undifferentiated products large number of competitors high exit barriers

When do customers have power

small number of customers similar products exist customers make high volume purchases customers can get accurate info on the selling industry products buys are undifferentiated (no quality difference only brand difference) They can easily vertically integrate backwards (companies ability to do it themselves) Can easily switch from one seller to another

Supplier power

small number of suppliers few substitutes suppliers are nondependent of the buyer supplier can get accurate info on buying industry suppliers have differentiated their precepts suppliers can easily integrate forward suppliers have made it costly to switch

Broad environment

sociocultural forces economic forces technological forces political/ legal forces

Why consider society

stakeholders are members of society-assess values and beliefs good ethical reputation avoid restrictive legislation change=opportunities (oil)

Indirect competitors/ substitues

sub not the same as competing products and series, Are: products and services from one industry that can substiute for the products and services of the industry being studied (ie. contact lens vs surgery) close sub- place ceiling on the price that can be charged, set indirect performance comparisons

Research

suggests industry is important to performance, but not primary determinant.

situational leadership

suggests that leadership style should fit the situation - production/operations background for cost cutting -marketing or R&D background for differentiation of products - young, well educated leader for changes -sales and marketing background, risk takers for growth - outsider for radical changes (need someone fro outside with diff skill set to come in) Effective leadership requires a combination of basic traits and situational traits

Corporate governance

the balance of economical and social goals and also individual goals for manager and firm. board of directors -protects interests of shareholders and other stakeholders -hires and fires, supervises and compensates top mgmt - provides advice to top mgmt - approves major strategic decisions - provides important links to other firms through board interlocks and associations with other companies

Environmental determinism

the most competitive strategy is determined by the environment. It involves adapting to environmental technical and human forces.

Structure content performance model

the performance of an industry is dependent on the conduct of the firm companies which id depended on industry structure.