MGT 487 Exam 1

Chapters 1-3

strategy

set of goal-directed actions a firm takes to gain and keep CA

dominant strategic plan

the strategic option that top mgrs think most closely aligns w the current reality and which is then executed

good strategy

enables a firm to reach superior performance and sustain CA

strategic mgmt

integrative mgmt field that combines analysis, formulation, + implementation to get CA

father of strategy?

What key question does he ask?

1. michael porter

2. asked which firms perform better than others

Three Elements of a Good Strategy

1. Firm’s competitive challenge (internal and external environments) — Analysis

2. Guiding policy to address competitive challenge — Formulation

3. Set of actions to implement the firm’s guiding policy — Implementation

competitive disadvantage

underperforming relative to other competitors in the same industry or within the same industry average

competitive parity

perf of 2+ firms @ same lvl

How to gain CA

1. cost leadership (firm creates goods/services similar to competitors, but at a lower cost)

2. differentiation (firm provides goods/services that consumers value more than g/s their competitor makes, but @ similar price point)

also called strategic positioning

strategy is NOT

1. grandiose statements

2. failure to face competitive challenge

3. operational effectiveness, competitive benchmarks, or tactical tools

shareholders

owners of the firm

board of directors

agents of the firm acting on behalf of shareholder wants/decisions

stakeholder

organizations, groups, and individuals who can affect or be affected by firm’s actions. they have an interest in the performance of the firm

Internal: stockholders, employees (execs, mgrs, workers), board members

External: customers, suppliers, alliance partners, creditors, unions, communities, media, and gov’t

stakeholder strategy

approach to managing a diverse set of stakeholders to gain and sustain CA

Decision tool for stakeholder strategy

1. power (whether the stakeholder can get the firm to do something they otherwise wouldn’t do)

2. legitimate claims (perceived to be legally valid or appropriate)

3. urgent claims (requires company’s immediate attention)

Stakeholder Impact Analysis

1. Who are they?

2. What are their interests/claims?

3. what opportunities/threats do they present?

4. what economic, legal, ethical, or philanthropic responsibilities do we have to our stakeholders?

5. what should we do to meet their concerns?

Pyramid of CSR

Philanthropic = corporate citizenship (voluntary)

Ethical = doing what is right

Legal = society’s ethics. Minimum acceptable standards

Economic = gain and sustain CA

strategic leadership

successful use of power and influence by directing the activities of others pursuing an org’s goals and enabling an org CA

formal vs informal authority

formal = position

informal = persuation

Golden Circle Theory

explains why certain organizations and leaders are able to inspire action while others are not.

Inner = Why (the company’s vision statement; their purpose)

Middle = How (the features of the product/service)

Outer = What (the product/service itself)

Together, the middle and outer layers make up the company’s mission statement

upper echelon’s theory

organizational outcomes reflect the values of the top mgmt team

Strategic Leaders: the 5 Level Pyramid

5 = executive (helps others reach their full potential thru power and humility)

4 = effective leader (compelling vision and mission to guide groups twds superior performance)

3 = competent mgr (organizing resources to accomplish goals and obj)

2 = contributing team member (achieve team obj)

1 = highly capable individual (makes productive contributions)

Strategy process across levels

1. corporate = where to compete (industry, markets, and geography)

2. business = how to compete (cost leadership, differentiation, value innovation) → SBUs

3. functional = how to implement the given strategy

   • value innovation = driving buyer value and lowering costs

Strategic Business Units

stand alone division of a larger conglomerate that is unaffected by the performance of other business units.

• Has profit and loss responsibility

• gets guidelines from corporate headquarters

• implements business strategy

intended strategy

outcome of rational and structured top-down strategic plan

emergent strategy

unplanned strategic initiative beginning at the bottom of the org but which can influence and shape the firm’s strategy

realized strategy

combo of intended and emergent strategies

strategic initiatives

an activity a firm pursues to explore and develop

how do strategic initiatives develop

1. autonomous actions → strategic intiatives undertaken by employees as a response to an unexpected situation

2. serendipity → random events that have an effect on strategic initiatives

3. resource allocation process (RAP) → how a firm allocates resources based on policy. helps shape realized strategy

strategic decision making

• can be limited due to cognitive limitations like biases

  • ex: choosing “good enough” vs. optimal solutions

• AI can ∆ the info @ our fingertips

• Mgrs can become better at DM

  • theories and frameworks help make sense of uncertain info

ways to improve DM

1. devil’s advocacy

2. dialectic inquiry → exploring alternatives and discussing compromises

PESTEL

Political = processes and actions of gov’t bodies

• can be shaped through lobbying, PR, court rulings, etc.

• political pressure often results in ∆s in legislation

Economic

• growth rates → businesses expand and are more profitable

• unemployment lvls

• interest rates → credit is cheap bc interest rates are low

• price stability means an increase in prices = inflation

Sociocultural = society’s norms, values, cultures

• constantly in flux

• trends should be monitored

Technological

• application of knowledge like new products or processes (ex: lean tech or six sigma)

• innovations in AI and machine learning

Ecological

• broad envt issues

• the relationship bw firms and the envt can be adversarial or can provide business opportunities (ex: Tesla producing cars w 0 emissions)

Legal = official outcomes of political pressures like laws, mandates, etc.

• many industries have been dergulated

• govts can achieve desired outcomes by offering incentives like subsidies, tax credits, etc.

vision

what we ultimately want to accomplish

• important because it helps employees find meaning in their work (sense of purpose)

mission

how we want to accomplish our goals

• product/service

• what market it will compete in

values

commitments, safeguards, and legal/ethical actions used to back the other 2 steps

• ethical standards and norms

• helps employees understand the org culture and deal with complexity, as well as resolve conflict

two types of vision statements

1. customer-oriented = focus on solving problems for the customer

2. product-oriented = focus on improving existing products/services

what is the problem w product-oriented vision statements?

customer needs are always changing so there is limited space to play

3 approaches to organizational strategy

1. strategic planning → formal, top-down

2. scenario planning → formal, top-down

3. strategy as planned emergence → hybrid; combines top-down and bottom-up

strategic vs scenario planning

strategic = 1 plan made by executives

scenario = multiple plans and “what-if” scenarior by executives; much more expensive bc it plans optimistic and pessimistic futures

characteristics of a top-down process

rational, data-driven strategy process thru which top mgmt tries to program future success

issues w top-down approach

1. May not adapt well to change.

2. Formulation is separate from implementation. (thinking abt strategy is different than doing it)

3. Information flows one-way.

4. Leaders’ future vision can be wrong

approaches to scenario planning

1. Get input from different levels and functions:

   • R&D, manufacturing, and marketing and sales.

2. Determine how to compete situationally.

   • Example: UPS

3. Attach probabilities into different future states:

   • Highly likely vs. unlikely

Black Swan Events

highly improbable but high-impact events

Ex: security breach of IT system; the 2008 financial crisis

these SHOULD still be considered, even though they have a less than 5% chance of occurring

Strategy as a planned emergence

• bottom-up strategic initiatives emerge

• evaluated and coordinated by mgmt

• less formal and stylized

• relies on personal experience, front-line employee insights

firm performance

1. firm effects = up to 55%

2. industry effects = about 20%

3. other effects = about 25%

   1. includes business cycle effects, unexplained variances, etc.

industry

group of companies that are already established and operating in a specific market or industry

• have similar suppliers/buyers

• have similar goods/services

rivalry among competitors

intensity w which companies in the same market industry compete for market share and profitability

threat of new entrants

The risk that potential competitors will enter an industry:

• Lowers industry profit potential.

• Increases spending among incumbent firms.

power of suppliers

Pressures that industry suppliers can exert on an industry’s profit potential.

Lowers industry profit potential if:

• Suppliers demand higher prices for their inputs.

• Suppliers capture part of the economic value created

power of buyers

Lowers industry profit potential if:

• Buyers gets price discounts, which reduces revenue.

• Buyers demand higher quality / service, which raises production costs

Threat of Substitutes

Meet the same basic customer need:

• In a different way.

• in a way that makes it available from outside the current industry.

competitive industry structure

• the # and size of competitors

• firm’s degree of pricing power

• type of product/services

• height of entry barriers

industry growth

Affects intensity of rivalry among competitors.

During periods of high growth:

• Consumer demand rises.

• Price competition among firms decreases.

During periods of negative growth:

• Rivalry is fierce.

• Rivals can only gain at the expense of one another.

• Price discounts, promotional campaigns, and retaliation abound

strategic commitments

firm actions are costly, long-term oriented, and hard to reverse

exit barriers

Obstacles that determine how easily a firm can leave that industry. Mainly economic and social factors. Include fixed costs that must be paid.

the sixth force

complements

• A product, service, or competency that adds value when used with the original product

co-opetition

cooperation bw competitors to achieve a strategic objective

strategic group

set of companies pursuing a similar strategy in the same industry

strategic group model/framework

• clusters diff firms into groups based on key strategic dimensions

mobility barrier

• Restrict movement between strategic groups.

• Industry-specific factors that separate one group from

another.

• Based on hard-to-reverse investments (strategic

commitments)

what are the 4 competitive industry structures

1. perfect competition

2. monopolistic competition

3. oligopoly

4. monopoly

perfect comp characteristics

1. many small firms

2. firms are price takers

3. commodity (ubiquitous) product

4. low entry barriers

LOWEST PROFIT POTENCH

monopolistic comp characteristics

1. many firms

2. some pricing power

3. differentiated product

4. medium entry barriers

oligopoly characteristics

• few (large) firms

• some pricing power

• differentiated product

• high entry barriers

monopoly characteristics

1. one firm

2. considerable pricing power

3. unique product

4. v high entry barriers