COB 487 Test 1 Yankey

Strategic Management

a set of managerial decisions and actions that determines the long-run performance of a corporation

Strategic Management Includes:

Internal and external environment scanning

Strategy formulation

Strategy implementation

Evaluation and control

Benefits of Strategic Management

Clearer sense of strategic vision for the firm

Sharper focus on what is strategically important

Improved understanding of a rapidly changing environment

Globalization

the integration of corporations and finance markets

Sustainability

refers to the use of business practices to manage the triple bottom line

Triple bottom line

the management of traditional profit/loss

the management of the company's social responsibility

the management of the company's environmental responsibility

Environmental Scanning

the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation

Mission

the purpose of an organization

Vision

describes what the organization would like to become

Objectives

the end results of planned activity

strategy

forms a comprehensive master approach that states how the corporation will achieve its mission and objectives

Policy

a broad guideline for decision making that links the formulation of a strategy with its implementation

Triggering Event

something that acts as a stimulus for a change in strategy

Triggering event examples

New CEO, external intervention, threat of change in ownership, performance gap, strategic inflection point

Strategic Decisions

deal with the long-term future of an entire organization and have three characteristics:

Rare

Consequential

Directive

Board of directors

a group of persons elected by the stockholders to manage a corporation

Corporate Governance

the relationship among the board of directors, top management and shareholders in determining the direction and performance of the corporation

Responsibilities of the Board of directors

effective board leadership, strategy of the organization, risk vs initiative, succession planning, sustainability

Due care

the board is required to direct the affairs of the corporation but not to manage them

Roles of the Board of Directors

Monitor developments inside and outside the org, evaluate and influence management, initiate and determine the corporation's mission and strategies

Inside directors

Board members who are generally part of the company's senior management team; appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance.

Outside directors

board members who are not employees of the firm, but who are frequently senior executives from other firms or full-time professionals

Agency Theory

states that problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation

Stewardship Theory

proposes that, because of their long tenure with the corporation, insiders (senior executives) tend to identify with the corporation and its success

Sarbanes-Oxley Act

-designed to protect shareholders from excesses and failed oversight of boards of directors

-whistleblower procedures

-improved corporate financial statements

Social responsibility

proposes that a private corporation has responsibilities to society that extend beyond making a profit

Ex) charitable activities, cleaning rivers/streams, giving back

Friedman's traditional view of business

primary goal of business is profit maximization not spending money on social responsibility

Social capital

the goodwill of key stakeholders, that can be used for competitive advantage

Benefits of being socially responsible

- May enable firm to charge premium price and fain brand loyalty

- May help generate enduring relationships with suppliers and distributors

- Can attract outstanding employees

- Can utilize the goodwill of public officials for support in difficult times

Stakeholders

have an interest in the business and affect or are affected by the achievements of the firm's objectives

Enterprise Strategy

an overarching strategy that explicitly articulates the firm's ethical relationship with its stakeholders

Stakeholder analysis

the identification and evaluation of corporate stakeholders, 3 steps

Step 1 of stakeholder analysis: Primary stakeholders

have a direct connection with the corporation and who have sufficient bargaining power to directly affect corporate activities, customers, employees, suppliers, shareholders

Step 2 of stakeholder analysis: Secondary Stakeholders

have an indirect stake in the corporation but are also affected by corporate activities, includes NGOs, activists

Step 3 in stakeholder analysis

estimate the effect on each stakeholder group from any particular strategic decision

Ethics

the consensually accepted standards of behavior for an occupation, trade, or profession

Morality

one's rule of personal behavior based on religious or philosophical grounds

Law

the formal codes that permit or forbid certain behaviors and may or may not enforce ethics or morality

Moral Relativism

claims that morality is relative to some personal, social or cultural standard and that there is no method for deciding whether one decision is better than another

Naïve relativism

based on the belief that all moral decisions are deeply personal and that individuals have the right to run their own lives

Role relativism

based on the belief that social roles carry with them certain obligations to that role

Social group relativism

based on a belief that morality is simply a matter of following the norms of an individual's peer group

Cultural relativism

based on the belief that morality is relative to a particular culture, society or community

Kohlberg's levels of moral development

- Preconventional level- concern for one's self

- Conventional level- considerations for society's laws and norms

- Principled level- guided by an internal code of ethics

Code of Ethics

specifies how an organization expects its employees to behave while on the job

- Clarifies company expectations of employee conduct in various situations

- Makes clear that the company expects its people to recognize the ethical dimensions in decisions and action

Whistleblowers

employees who report illegal or unethical behavior on the part of others

Utilitarian Approach

proposes that actions and plans should be judged by their consequences

Individual Rights Approach

proposes that human beings have certain fundamental rights that should be respected in all decisions

Justice Approach

decisions must be equitable, fair and impartial in the distribution of costs and benefits to individuals or groups

Environmental Scanning

the monitoring, evaluation, and dissemination of information relevant to the organizational development of strategy

Natural Environment

includes physical resources, wildlife and climate that are an inherent part of existence on earth

Task Environment

those elements or groups that directly affect a corporation and, in turn, are affected by its Ex) government, local communities, suppliers, competitors, creditors, unions, special interest groups/trade associations

Societal Environment

mankind's social system that includes general forces that do not directly touch on the short-run activities of the organization, but that can influence its long-term decisions

Porter 5 forces

- Potential entrants "Threat of new entrants"

- Buyers "Bargaining power of buyers"

- Substitutes "Threat of substitute products or services"

- Suppliers "Bargaining power of suppliers"

- Other stakeholders "relative power of unions, governments, special interest groups"

Threat of new entrants

new entrants to an industry bring new capacity, a desire to gain market share and substantial resources

Entry Barrier

an obstruction that makes it difficult for a company to enter an industry

Substitute product

a product that appears to be different but can satisfy the same need as another product

Bargaining power of buyers

ability of buyers to force prices down, bargain for higher quality and play competitors against each other

Defenders

focus on improving efficiency

Prospectors

focus on product innovation and market opportunities

Analyzers

focus on at least two different product market areas

Reactors

lack a consistent strategy-structure-culture relationship