Management 425 Midterm - Rashad Captan

Big Three U.S. Automakers

Ford, GM, Chrysler struggled during the first decade of the 21st century

strategic management

Integrative management field that combines analysis, formulation, and implementation in the quest for a competitive advantage

strategy

set of goal-directed and integrated actions a firm takes to gain and sustain superior performance relative to competitors

good strategy

1. Diagnosis to identify the competitive challenge

2. Guiding policy to address the competitive challenge through strategy formulation. Lays the foundation to craft a firm's corporate, business, and functional strategies

3. A set of coherent actions to implement the firm's guiding policy

strategic commitment

a sizable investment or a change to an organization's incentive and reward system. Difficult and costly to reverse.

Example of a guiding policy.

economies of scale

decreasing the cost per unit as output increases

Crafting a good strategy consists of:

* Define an organization's competitive challenge through a critical and honest assesstment of the status quo

* Provides a game plan for dealing with the competitive challenge identified

* Requires effective implementation through a coherent and consistent set of actions

competitive advantage

a firm with superior performance relative to competitors in the same industry or the industry average. Relative, not absolute.

benchmark

the performance of other firms in the same industry or an industry average

sustainable competitive advantage

a firm that can outperform its competitors or the industry average over a prolonged period

competitive disadvantage

firm underperforms its rivals or the industry average

competitive parity

two or more firms perform at the same level

two distinct strategies that form the basis for competitive advantange

1. A firm provides goods or services that consumers value more than its competitors' offerings, but at a similar cost (differentiation strategy)

2. The firm furnishes goods and services similar to those of competitors but at a lower cost (a cost leadership strategy)

strategic positioning

managers stake out a unique position that allows the firm to provide value to customers while controlling costs

Example: Walmart serves as a low-cost tailer, where Nordstrom provides superior customer service to the high-end luxury market segment

Red Queen Effect

refers to a situation in which everyone runs faster but there are no changes in relative strategic positions. Studying and copying the competition results in unsucessful efforts to gain a competitive advantange. Results in a zero-sum competition.

zero-sum competition

firm can gain market share only at a competitor's expense

Incorrectly referred to as a strategy

Pricing, internet, alliance, operations, AI, brand strategy, marketing, HR, China, Covid-19. Necessary part of a firm's initiatives to support its competitive strategy, but not sufficient to achieve a competitive advantange.

value creation

Occurs because companies with a good strategy can provide products or services to consumers at a price point that they can afford while keeping cost under control, thus making a profit at the same time. Both parties benefit from this trade as each captures a part of the value created.

Lays the foundation for societal benefits such as education, infrastructure, public safety, health care, clean water, and clean air.

stakeholders

organizations, groups, and individuals that can affect or be affected by a firm's actions

shareholders

provide capital with expectation that they will receive a return on their investment in stock appreciation and dividend payments

creditors

debt holder provide financing for the firm

employees

contribute their time and talents to the firm, receiving wages and salaries in exchange

communities

furnish real estate, infrastructure, and public safety

Internal stakeholders

employees, stockholders, board members

External stakeholders

customers, suppliers, alliance partners, creditors, unions, communities, governments at various levels, and the media

stakeholder strategy

single-minded focus on shareholders. Puts shareholder interest above all else

Arguments as to why effective stakeholder management can increase firm performance

* Satisfied stakeholders are more likely to reveal info that can further increase the firm's value creation or lower its costs

*Increased trust lowers the costs of firms' business transactions

*Greater organizational adaptability and flexibility

*Likelihood of adverse outcomes can be reduced, creating more predictable and stable returns

*Firms can build strong reputations that are rewarded by partners, employees, and customers

Stakeholder impact analysis

provides a decision tool that helps strategic leaders recognize, prioritize, and address the needs of different stakeholders

5 steps in stakeholder impact analysis

1. Who are our stakeholders?

2. What are our stakeholders' interests and claims? (Power, Legitimacy, Urgency)

3. What opportunities and threats do our stakeholders present?

4. What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders?

5. What should we do to effectively address the stakeholder concerns?

Three crucial stakeholder attributes

1. Power over a company when it can get the firm to do something that it would not otherwise do

2. Legitmacy: When a stakeholder's claim is perceived as legal valid of otherwise appropriate, that stakeholder has a legitimate claim

3. Urgency: A stakeholder has an urgent claim when it requires a company's immediate attention and response

The Pyramid of Corporate Social Responsibility

Philanthropic - Corporate citizenship, giving back to society

Ethical - Do what is right, just, and fair (animal testing, stem cell research, genetic engineering)

Legal responsibilities - Laws and regulations are society's codified ethics. Define minimum acceptable standard

Economic Responsibilitles - Gain and sustain competitive advantange

AFI Strategy Framework

Effectively managing is the result of the following:

1. Analysis

2. Formulation

3. Implementation

Highly interdependent and frequently occur simultaneously

Analysis key topics

*Strategic leadership and the strategy process

*External analysis

*Internal analysis

Shared value and competitive advantage

Formulation key topics

*Business strategy

*Corporate strategy

*Global strategy

Implementation

Organizational design, corporate governance, business ethics, and business models

Chapter 1 Implication for Strategic Leaders

* A good strategy is grounded in a strategic management process that defines the competitive challenge provides a guiding policy, and implemented by coherent actions

*A successful strategy requires three integrative management tasks- analysis, formulation and implementation

* Appreciate the fact that competition is everywhere

*Be mindful of the organization's internal and external stakeholders

*Principles of strategic management can be applied universally to all organizations

strategic leadership

executives' use of power and influence to direct the activities of others when pursuing an organization's goals

position power

Power because of your position (Ex: CEO)

informal power

persuasion to influence others when implementing strategy

What do CEOs spent most of their time doing?

Interacting - talking, cajolig (tf?)m soothing, selling, listening, and nodding.

Upper-echelons theory

A conceptual framework that views organizational outcomes—strategic choices and performance levels—as reflections of the values of the members of the top management team.

The Level-5 Pyramid Adapted to Compare Corporations and Entrepreneurs

5. Executive:

4. Effective Leader

3. Competent Manager

2. Contributing Team Member

1. Highly capable individual

Executive

builds enduring greatness through a combination of willpower and humility

Effective leader

presents compelling vision and mission to guide groups toward superior performance. does the right things.

Competent manager

is efficient and effective in organizing resources to accomplish stated goals and objectives. does things right.

presents a convincing vision and mission that helps groups improve their performance

Contributing team member

uses high leels of individual capability to work effectively with others in order to achieve team objectives

Highly capable individual

makes productive contributions through motivation, talent, knowledge, and skills

strategy formulation

the part of the strategic management process that concerns the choice of strategy in terms of where and how to compete

strategy implementation

The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done, or strategy execution.

Corporate strategy

concerns the question of where to compete in industry, markets, and geography

Business strategy

concerns the question of how to compete (cost leadership, differentiation, value innovation)

Functional strategy

concerns the question of how to implement a chosen business strategy. different corporate and business strategies require different activities across the various functions.

Vision

What is our purpose? What do we want to accomplish ultimately?

Captures the organizaiton's purpose and aspirations. Spells out what the organization ultimately wants to accomplish.

Mission

How do we accomplish our goals?

describes what an organization actually does - the products and services it plans to provide and the markets in which it will compete

Value

What commitments do we make, and what safeguards do we put in place, to act legally and ethically as we pursue our vision and mission?

Strategic intent

A stretch goal that pervades the entire organization with a sense of purpose. Help create core competencies.

Refers to an overall goal that gives the whole organziation a sense of purpose

Strategic commitments

firm actions that are costly, long-term oriented, and difficult to reverse. Backs up firm vision.

product-oriented vision

defines a business in terms of a good or service provided. Companies that define themselves based off this vision type tend to be less flexible and more likely to fail.

customer-oriented vision statements

defines a business in terms of providing solutions to ucstomer needs. Can easily adapt to changing environments

core values statement

statement of principles to guide an organization as it works to achieve its vision and fulfill its mission, for both internal conduct and external interactions; it often includes explicit ethical considerations

strategic management pcoess

Method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage.

top-down strategic planning

A rational, data-driven strategy process through which top management attempts to program future success.

Concentrated in the office of the CEO

Better for slow-moving, stable, larger environments

Scenario planning

Strategy planning activity in which top management envisions different what-if scenarios to anticipate plausible futures in order to derive strategic responses.

Takes place at the corporate and business levels of strategy

black swan

describes the high impact of a highly improbable event

strategy as planned emergence

Strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management. Strategic initiatives can bubble up from deep within the organization through autonomous actions, serendipity, and resource allocation process.

Combines all elements of the AFI framework in a holistic and flexible fashion.

Better for fast-moving, changing, and smaller environments

intended strategy

The outcome of a rational and structured top-down strategic plan.

emergent strategy

Any unplanned strategic initiative bubbling up from the bottom of the organization.

realized strategy

Combination of intended and emergent strategy.

strategic initiative

Any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures.

autonomous actions

Strategic initiatives undertaken by lower-level employees on their own volition and often in response to unexpected situations.

Example: Starbucks cappuccino

serendipity

Any random events, pleasant surprises, and accidental happenstances that can have a profound impact on a firm's strategic initiatives.

strategic dissonance

Occurs when a firm's static fit no longer matches competitive realities.

theory of bounded rationality

When individuals face decisions, their rationality is confined by cognitive limitations and the time available to make a decision. Thus, individuals tend to "satisfice" rather than to optimize.

cognitive limitations

Constraints such as time or the brain's inability to process large amounts of data that prevent us from appropriately processing and evaluating each piece of information we encounter.

cognitive biases

Obstacles in thinking that lead to systematic errors in our decision making and interfere with our rational thinking.

Example: illusion of control, escalating commitment, confirmation bias, reason by analogy, representativeness, groupthink

illusion of control

A cognitive bias that highlights people's tendency to overestimate their ability to control events.

escalating commitment

A cognitive bias in which an individual or a group faces increasingly negative feedback regarding the likely outcome from a decision, but nevertheless continues to invest resources and time in that decision, often exceeding the earlier commitments.

confirmation bias

A cognitive bias in which individuals tend to search for and interpret information in a way that supports their prior beliefs. Regardless of facts and data presented, individuals will stick with their prior hypothesis.

reason by analogy

A cognitive bias in which individuals use simple analogies to make sense out of complex problems.

representativeness

A cognitive bias in which conclusions are based on small samples, or even from one memorable case or anecdote.

devil's advocacy

Technique that can help to improve strategic decision making; a key element is that of a separate team or individual carefully scrutinizing a proposed course of action by questioning and critiquing underlying assumptions and highlighting potential downsides.

1. Team 1 generates a plan

2. Team 2 plays devil's advocate and questions and criticizes the course of action

3. Team 1 revises proposed plan based off input from Team 2

4. Team 2 plays devil's advocate on the revisions

5. Both teams agree on a course of action

Chapter 2 Implications for Strategic Leaders

* All employees should feel invested in and inspired by the firm's purpose

* Strategic leaders need to design a process that supports strategy formulation and implementation

* Leaders need to c onsider the rate of change and firm size

unrealized strategy

when parts of a firm's intended strategy fall by the wayside

According to the book Good to Great by Jim Collins, which of the following is companies that were able to gain a competitive edge all have what in common?

"great" leaders

Which of the following are questions that managers are likely to ask when beginning the strategic management process?

How can we achieve our goals?

What do we ultimately hope to achieve?

What are our values?

Which of the following are addressed during corporate strategy formulation?

which industry to compete in

which market to compete in

which geographic location to compete in

A core values statement provides...

ethics and morals

What does planned emergence allows for?

Bottom-up strategic initiatives to occur within a company and to be reviewed by executives.

A powerful strategic commitment assures...

that steps are taken to achieve the mission

General environment

Macroeconomic facotrs such as interest rates and currency exchange rates (no control)

Task environment

Industry's structure and composition of strategic groups (a set of close rivals) some influence and control

PESTEL model

A framework that categorizes and analyzes an important set of external factors (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. These factors can create both opportunities and threats for the firm.

Political factors

Result from the pressure that various groups such as government bodies, nongovernmental organizations (NGOs), and social movements can exert to influence the decisions and behavior of firms

NGO examples: American Civil Liberties Union, BLM, #Metoo, National Rifle Association

Economic Factors

Largely macroeconomic. Growth rates, employment level, interest rates, price stability (inflation and deflation), currency exchange rates

Growth rate

measures the change in the value of goods and services produced by a nation's economy

Real growth rate

growth rate that adjusts for inflation. indicates whether business activity is expanding or contracting (business cycle)

Employment levels

In boom times, unemployment tends to be low, and skilled human capital beomes scarce and more expensive.

In economic downturns, unemployment rises. Skilled human capital is more abundant and wages usually fall

Real interest rates

Amount that creditors earn for lending their money and the amount that debtors pay to use that money, adjusted for inflation

Inflation

A general and sustained increase in the overall price level for goods and services in an economy. Frequently results from too much money chasing too few goods and services

currency exchange rate

how many dollars one must pay for audit of foreign currency