STRAMA FLASHCARDS

Strategic Management

The ongoing process of planning, monitoring, and assessing everything necessary for an organization to meet its goals.

Strategic Management Core Objectives

• Achieving competitive advantage

• Ensuring long-term sustainability

• Aligning internal resources with external opportunities

• Key question: “Where do we want to go, and how will we get there?”

Strategic Management Process

1. Environmental Scanning: SWOT (Strengths, Weaknesses, Opportunities, Threats) and PESTEL

2. Strategy Formulation: Developing the vision, mission, and specific objectives

3. Strategy Implementation: Putting the plan into action (Resource allocation)

4. Strategy Evaluation: Measuring performance and making corrective adjustments

Policy Analysis

A systematic technique for evaluating existing or proposed policies to determine their effectiveness and impact.

Policy Analysis Purpose

• To solve “wicked” problems (complex, social, or organizational)

• To provide evidence-based recommendations to decision-makers

• Context: Used heavily in government (public policy) and large corporations (business policy)

The Rational-Comprehensive Model

A linear 5-step process:

• Define the problem

• Establish evaluation criteria (cost, equity, feasibility)

• Identify policy alternatives

• Evaluate alternatives against criteria

• Recommend the best policy

Incrementalism

Making small, “muddling through” changes rather than radical shifts

Frameworks for Policy Analysis

• The Rational-Comprehensive Model

• Incrementalism

Essential Tools: External Analysis

Political, Economic, Social, Technological, Environmental, Legal

Porter’s Five Forces

• Threats of new entrants

• Bargaining power of buyers

• Bargaining power of suppliers

• Threat of substitute products

• Intensity of rivalry

Essential Tools: Internal Analysis

• VRIO Framework: Does a resource provide a competitive advantage?

• Value Chain Analysis: Examining activities (logistics, ops, marketing) to see where value is added

VRIO Framework

• Value: Does it provide value?

• Rarity: Is it hard to find?

• Inimitability: Is is hard to copy?

• Organization: Is the firm organized to capture this value?

Integrating Strategy and Policy

Policy ensures that the strategy is executed consistently across the organization

Strategic Decision Making

A process of understanding how decisions interact and their impact on the organization to gain an advantage.

Wrong decisions taken at the wrong time, may result in catastrophic consequences. In other words, the power of strategic thinking lies in combining the power of the right decision with the right time.

direction, framework and evidence, successful organizations

• Strategic management provides the ______

• Policy analysis provides the _____

• _____ master bost to remain agile in a changing environment

Entrepreneurial process of creating a new venture

• Creation of entrepreneurial ideas

• Identification of entrepreneurial opportunities

• Opening of entrepreneurial venture

The Physical Environment

It is the first layer of the environment

Three Elements of the Physical Environment

• Physical Resources

• Climate

• Wildlife

The Societal Environment

• Changes in physical environment have an impact on the societal environment

• Political Forces, Economic Forces, Technological Forces, Socio-cultural sources

Social Forces

• Resulting from human interactions that can influence the thoughts, behavior, attitude, actions and even beliefs and customs of the people

• Trend in using of social media as a medium of communication

• There is a thin line delineating social forces and cultural forces called sociocultural forces

• Values, traditions, literacy level, consumer psychology

Policy Forces

• Political systems, political parties, and other related political groups that influence the political stability of a country

• Trade regulations, taxation, government stability, unemployment, worker’s benefits, election practices

Cultural Forces

• Refers to the integrated characteristics of a group of people or ethnic group in a particular society

• Religion, language, beliefs, customs, education

• Have significant influence on any entrepreneurial endeavor because of our cultural diversity

Environment Forces

• Primarily caused by changes or movements in the Philippine economy that have direct or indirect effects on the entrepreneurial venture

• Interest rates, inflation rates, employment, exchange rates

Legal Forces

• Directly involved in the legislation and interpretation of laws and ordinances directly affecting the business

• Product control, pricing and labeling

• Health and safety of the workers

• Administration of election process

• Advertising and promotion

• Exercise of profession

• Education administration and fees

Technological Forces

• Trends and development in computer and information technology that have impact on business

• Internet, social media, e-commerce, technological advancement, technological infrastructure

PESTEL

Physical, Environmental, Social, Technological, Economic, Legal

Environmental scanning

• Refers to gathering, critical, evaluation, and utilization of information on events and activities and their personal relationships with the physical, societal, and industry environments

• Identifies the expected threats and opportunities existing in the environment

• It helps define the future path of the business

• Assist in the formulation of the most appropriate entrepreneurial strategies

The Industry Environment

• Suppliers, customers, employees, creditors, competitors, government

Suppliers

Provide required materials, parts or services to the business

Customers

Buyer of goods or services produced or rendered by the business

Employees

Workers of the business who are highly responsible for the production of goods or delivery of services to the customers

Government

Handles the particular affairs fo the country

Competitors

• Produce or sell similar products or services

• Can be direct or indirect

Creditors

Refers to bank, financial institutions, and financial intermediaries engaged in the lending of money

Industry Analysis Scanning Tools

• SWOT Model - Analysis of external and internal environment by George Albert Smith, Jr. and Roland Christensen

• Forces of Competition Model - Known as the 5 Forces of Competition by Michael Porter

• Competitive Forces Matrix - Total perspective of the competition within the industry where the business operates; possible effects and the intensity of the threat of the competitive forces can be high, moderate or low

Five Forces of Competition

Competitive Forces Matrix

Why use the Five Competitive Forces

• Structure of the industry and company’s relative position are the two basic drivers of company profitability

• Find better strategic assess industry attractiveness

• How trends will affect industry competition

• Which industries a company should compete in

• How companies can position themselves for success

Conceptualization of Innovation

• A new and improved way of doing things, something novel and useful (Anderson, Potocnik, & Zhou, 2014)

• The conversation of a new idea into revenues and profits (Lafley & Charan, 2008)

• Transforming an idea into a commercially successful product (Ip, 2016)

• The transformation of knowledge into new products and processes (Porter & Stern, 1999)

• The process of translating an idea into a commercially viable customer value proposition (Chandy & Tellis, 1998)

• A multi-stage process by which an organization transforms an idea into a new or improved product or process, in order to differentiate itself and compete successfully in the marketplace (Baregheh, Rowley, & Sambrook, 2009)

Innovation

• _____ is the successful commercialization invention

• An _____ is an invention that has a socioeconomic effect and changes how people live or work – or what they buy

• _____ is the successful commercialization of an idea into a new product, process, or practice

• _____ is the successful conversion of an idea into a new product, process, or practice

• _____ is the successful transformation of an idea into a new product, process, or practice that creates economic benefits and/or social benefits

• _____ is the successful translation of an idea into a new product, process, or practice that creates economic value and/or social value

• _____ is the effective implementation of an idea for a new product, process, or practice that creates value

Strategic Innovation

• Defy what seemed impossible in their individual silos, coalesce on a shared vision and an execution roadmap, and work to bring to life a new business creation and innovation

• NOT based on the work of a few crazy geniuses, but on collaborative effort across functions and teams aligned on a mission

• NOT creating an episodic reaction or just new one-off initiatives in isolation or even a secretive skunk works effort. Instead, you create a senior-leader-led culture of innovation that generates meaningful breakthroughs and creates value across successive horizons for your organization and its customers

“Gap”

This implies:

(1) new, emerging customer segments or existing customer segments that other competitors have neglected;

(2) new, emerging customer needs or existing needs not served well by other competitors;

(3) new ways of producing, delivering, or distributing existing or new products or services to existing or new customer segments

Improving efficiency

Companies keep focusing their energy on _____ in order to match or beat their rivals

Competitive trap

Improving efficiency by following similar strategies however can lead to _____

Replicated

Companies end up competing solely on the basis of incremental improvements in cost, quality, or both (which can often be _____)

Difficult to further improve

After a number of cost cutting exercises and/or quality drives, even the most experienced managers will find it _____ corporate performance

3 Central Questions to a Firm’s Innovation Strategy

• How will a firm’s innovations create value for potential customers?

• How will a firm capture a share of the value its innovations generate?

• What types of innovations will allow the firm to create and capture value, and what resources should each type of innovation receive?

Value Innovation

Kim and Mauborgne (1999) define _____ as a concept that makes the competition irrelevant by offering fundamentally new and superior buyer value in existing markets and by enabling a quantum leap in buyer value to create new markets

Three Key Elements to Strategic Innovation

Fundamental reconceptualization of the business model and the reshaping of exisitng markets to achieve dramatic value improvements for customers and high growth for companies

First Element: Fundamental Reconceptualization of the Business Model

1. What business we are in? Who are the customers? How do we achieve value?

2. Asking above questions make managers to look at their tacit rules and underlie the way business is run in their industry

3. Strategic innovators take guard against established mental models and tacit industry rules.

4. They ignore what they are and focus on what they can be!

Second Element: Reshaping of Existing Markets

1. Strategic innovators look across substitute markets and across substitute strategic groups.

2. While conventional strategic logic focuses on fighting for market share in existing markets, strategic innovators create new market space.

3. Conventional logic focuses on outperforming competition, strategic innovators seek radically superior value to make competition irrelevant (Hamel 1998)

4. Strategic innovators do not try to adapt to external trends but actively participate in shaping markets and external trends over time.

Third Element: Dramatic Value Improvements

1. Strategic innovation is not about marginal or incremental improvements but about achieving quantum leaps in value.

2. Strong emphasis on value puts customers at the center of strategic thinking.

3. Conventional focus on retaining the existing customers tends to promote hesitancy to challenge the status quo for fear of losing or dissatisfying existing customers.

4. Strategic innovation follows non customers closely to provide unusual insights into trends and changes (Geroski 1998).

5. Thus, strategic innovation can identify new products and services before existing customers even before they think of them (Prahlad 1993).

Strategic Innovation: In Context

An innovation with the potential to have major transformational effects on the evolution of markets and industries such as the following:

• Emergence of a new industry

• Convergence of two or more existing industries

• Major changes in how a specific need or set of inter-related needs and wants of consumers is met

• Major changes in how a product is produced, promoted, distributed, priced, and/or consumed/used

• Major changes in the structural characteristics of an industry such as market size, market growth rate, industry concentration, entry barriers, and exit barriers

• Major changes in the composition of competitors in an industry as a result of entry of new competitors, exist of present competitors, and changes in the competitive position of incumbent competitors

• Major changes in the configuration of value chain activities, assets and costs, and/or revenue model in an industry

• Major changes in the value proposition offered to customers and/or expected by customers

• Innovations that are referred to as big bang innovations, big “I” innovations, disruptive innovations, game changing innovations, moon shot innovations, orbit shifting innovations, radical innovations, and revolutionary innovations are strategic innovations, in that, they result in one or more major transformational changes such as the above

• Lafley and Charan (2008) characterize game changing innovations as innovations that alter the context of the business, reshape the market, and the innovating firm playing an entirely new game to which competitors must adapt

• Markides (1997) conceptualizes a strategic innovation as an innovation that entails strategically redefining the business and competing in new ways, as opposed to attempting to be better than competitors in the present ways of competing

• Urban, Weinberg, and Hauser (1996) characterize radically new products as products that revolutionize product categories, define new product categories, shift market structures, represent new technologies, require consumer learning, and/or induce behavior changes

BCG Matrix Axes

• The matrix is a protfolio management framework that plits business units along two axes: Relative Market Share (x-axis) and Market Growth Rate (y-axis)

• The model divides products into four categories: dogs, cash cows, question

  marks, and stars. Each group has its specific set of distinctive qualities.

Stars

These are high-growth, high-share products and are considered a company’s most valuable assets. They require significant investment to maintain their lead but have the potential to become future cash cows.

Cash cows

These products have a high market share in a low-growth market. They are mature market leaders that generate more revenue than is needed to maintain them; this surplus is often “milked” to fund other business units.

Question Marks

These operate in high-growth markets but have low market share. They are resource-heavy and require careful assessment to decide if they are worth the investment to become stars or if they should be divested.

Dogs

Products with low market share and low growth. They are often described as “cash traps” because they consume capital without providing significant returns, and firms typically aim to liquidate or divest them.

The Reinvestment Cycle

A core strategy of the matrix is to use the predictable cash flow from Cash Cows to finance the growth of Stars and promising Question Marks.

Product Lifecycle Transitions

As market growth slows, a Star can transition into a Cash Cow. Conversely, a Question Mark can either become a Star if it gains share, or a Dog if growth slows down first.

Vision Statement

• Answers the basic question: “What do we want to become?”

• Should be short, preferably one sentence, and as many managers as possible should have input into developing the statement.

• Should reveal the type of business the firm engages.

Mission Statement

• A declaration of an organizations “reason for being.”

• It answers the pivotal question: “What is our business?”

• It is essential for effectively establishing objectives and formulating strategies.

• Reveals what an organization wants to be and whom it wants to serve.

• Also called a creed statement, a statement of purpose, philosophy, beliefs, and business principles.

Developing Vision and Mission Statements

A widely used approach includes:

• Select several articles about these statements and ask all managers to read these as background information.

• Ask managers themselves to prepare a vision and mission statement for the organization.

• A facilitator or committee of top managers should then merge these statements into a single document and distribute the draft statements to all managers.

• A request for modifications, additions, and deletions is needed next, along with a meeting to revise the document.

Importance of Vision and Mission Statements

• To make sure all employees/managers understand the firm’s purpose or reason for being

• To provide a basis for prioritization of key internal and external factors utilized to formulate feasible strategies

• To provide a basis for the allocation of resources

• To provide a basis for organizing work, departments, activities, and segments around a common purpose

Characteristics of a Mission Statement

• Broad in scope; does not include monetary amounts, numbers, percentages, ratios, or objectives

• Fewer than 150 words in length

• Inspiring, reconciliatory, enduring

• Identifies the utility of a firm’s products

• Reveals that the firm is socially responsible for

• Reveals that the firm is environmentally responsible

• Includes nine components: customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concern for employees

• A good _____ allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity.

• A _____ needs to be broad to reconcile differences effectively among, and appeal to, an organization’s diverse stakeholders.

Mission Statement Components: Customers

Who are the firm’s customers?

Mission Statement Components: Products or services

What are the firm’s major products or services?

Mission Statement Components: Markets

Geographically, where does the firm compete?

Mission Statement Components: Technology

Is the firm technologically current?

Mission Statement Components: Survival, growth, and profitability

Is the firm committed to growth and financial soundness?

Mission Statement Components: Philosophy

What are the basic beliefs, values, aspirations, and ethical priorities of the firm?

Mission Statement Components: Self-concept (distinctive competence)

What is the firm’s major competitive advantage?

Mission Statement Components: Public image

Is the firm responsive to social, community, and environmental concerns?

Mission Statement Components: Employees

Are employees a valuable asset of the firm?