Strategic Management - Chapter 1 & 2

What is productivity?

A measurement of the amount of goods and services produced per worker, per hour.

Define strategy

A firms plan (or theory) for how it will succeed and perform well in its market.

List the four key questions that involve strategy

1. Where to compete - know the market

2. How to offer unique value

3. What resources / capabilities are necessary

4. How to sustain a competitive advantage

How does strategy create a competitive advantage?

A company gains a competitive advantage when its strategy helps it perform better than competitors.

What is shareholder value?

The returns shareholders earn from owning shares in a company. Returns are made up of dividend payments + capital appreciation.

Besides shareholder returns, what are two other ways to define shareholder value?

1. NPV of future cashflows

2. Quarterly annual profits

Define market capitalization

The total market value of a company’s outstanding shares

What is profitability?

The return a company earns on the money invested in the business

How does strategic management look at an organization?

An organization is seen as a holistic entity, strategic management is directed toward overall organizational goals.

Briefly explain the trade-off between efficiency and effictiveness

Efficiency measures a ratio of performance, it involves doing the “thing right” while effectiveness means doing the “right thing”.

What are the 5 building blocks of strategy?

1. Follow clear parameters

1. Fit together like a mosaic

2. Maintain flexibility

3. Be supported by the right organizational environment

4. Remain adaptable to change

Define competitive advantage

The ability to create more economic value than competitors.

What three questions help define a business?

1. Who are your customers

2. What do the customers care about

3. How are the customers needs being satisfied

Define a multidivisional company

A company that competes in several different businesses and has separate divisions to manage each

Briefly explain the three levels of strategic management

1. Corporate level: CEO, Board of Directors, and corporate staff

2. Business level: Divisional managers and staff

3. Functional level: Functional managers

What are two main types of managers in a company and, what are they responsible for?

1. General Manager: Responsible for the overall performance of the company or one of it’s divisions

2. Functional Manager: Responsible for specific business function such as marketing, accounting or operations.

Briefly explain the responsibilities of corporate level managers

They oversee development of strategies for the whole organization by setting goals, choosing business areas, allocating resources, and providing leadership

Briefly explain the role of business-level managers in a company

They turn corporate goals into strategies for their specific business or division.

Briefly explain the role of functional level managers in a company

They manage a specific area, such as marketing or operations, and create strategies to achieve the business’s goals

List the steps to the strategic planning process

1. Determine corporate mission and goals

2. Analyze external opportunities and threats

3. Analyze internal opportunities and threats

4. Select strategies that build on the organizations strengths and correct weaknesses

5. Implement the strategies

Briefly explain the three components of a mission statement

1. Mission: The purpose of the company

2. Vision: What the company would like to achieve

3. Values: How managers and employees work to achieve their mission and goals

What is a SWOT analysis?

The comparison of strengths, weaknesses, opportunities and threats for an organization.

What are the three main criticisms of the formal planning model?

1. The unpredictability of the real world

2. The role that lower level managers can play in the process

3. Many successful strategies are a result of serendipity

Briefly explain the first criticism of the planning model

The unpredictability of the real world - we live in a world where uncertainty, complexity and ambiguity dominate, in which small events can have large impacts.

Briefly explain the second criticism of the planning model

Role of lower-level managers - too much importance is tied to top level management.

Briefly explain the third criticism of the planning model

Serendipity - many successful strategies are not a result of well thought out plans but, are unexpected outcomes.

List emergent and deliberate strategies

1. Intended Strategy: A strategy planned to be pursued

2. Deliberate Strategy: An intended strategy actually pursued

3. Realized Strategy: A strategy a firm is pursuing

4. Unrealized Strategy: An intended strategy that cannot be implemented

5. Emergent Strategy: A strategy that emerges overtime