MGMT 425 Final Studyguide

What are the three components of strategic management?

Analysis:

• Strategic goals (vision, mission, strategic objectives

• internal/external environment

Decisions (formulation):

• What industries should we compete in?

• How should we compete in those industries?

Actions (implementation):

• Allocate necessary resources

• Design the organization to bring intended strategies to reality.

What are the two fundamental questions of strategic management?

1. How should we compete to create competitive advantage

2. How can we create advantages that are unique, valuable, and hard to copy?

Why is operational effectiveness not enough for sustainable competitive advantage?

Because competitors can imitate operational improvements

What does ambidextrous management mean?

Balancing short-term efficiency with long-term exploration

What is the economic segment of the general environment?

Interest rates

Unemployment

Inflation (Consumer Price Index)

GDP trends

Stock market valuations

National debt

What are the four stages of the industry life cycle?

1. Introduction

2. Growth

3. Maturity

4. Decline

What are strategies in the introduction stage?

Develop the product, get users to try it, generate exposure so the product becomes “standard”

What are strategies in the growth stage?

Create branded differentiation

Stimulate selective demand

Provide financial resources to support value-chain activities

What are strategies in the maturity stage?

Create efficient operations

Lower costs

Adopt reverse or breakaway positioning

What are strategies in the decline stage?

Maintain the product position

Harvest profits and reducing costs

Exit the market

Consolidate or acquire surviving firms

What is a turnaround strategy?

a plan to reverse a company’s decline by cutting costs, eliminating weak areas (pruning), and improving productivity to restore performance.

What are Porter’s Five Forces?

Rivalry

threat of new entrants

threat of substitutes

buyer power

supplier power

What increases rivalry among competitors?

Many competitors

slow industry growth

high fixed costs,

low differentiation

high exit barriers

What are barriers to entry?

Economies of scale

product differentiation

capital requirements

switching costs

distribution access

cost disadvantages

When is buyer power high?

Large-volume buyers

low switching costs

ability to backward integrate

How do substitutes threaten an industry?

They limit price and erode industry profits

What does VRIN stand for?

Valuable, Rare, Inimitable, Non-substitutable

What makes a resource valuable?

It helps exploit opportunities or neutralize threats

What makes a resource rare?

Few competitors possess it, uncommon, difficult to exploit

What makes a resource inimitable?

1. Physical uniqueness

2. path dependency

3. causal ambiguity

4. social complexity

What does non-substitutable mean?

No alternative resource can provide the same strategic value

What are the three types of firm resources?

Tangible, intangible, and organizational capabilities

What are characteristics of a good industry analysis?

looks rigorously at the structural underpinnings & root causes of profitability.

• Must choose the appropriate time frame.

• Consider the industry business life cycle.

• Average profitability over 3-5 years or longer.

• Must consider quantitative factors as well as qualitative.

• Get numbers to quantify five forces factors.

• i.e. percentages of total cost or sales accounted for by the industry,

actual switching costs

• It’s not a zero-sum game.

What are the primary value chain activities?

1. Inbound logistics: recieving, storing, and distributing inputs to the product

2. Operations: activities associated with transforming inputs into FP

3. Outbound logistics: collecting, storing, and distributing the prod/service to buyers

4. Marketing & sales: purchase of prods/services by end users, how to make those sales

5. Service: actions associated with providing service to enhance/maintain the value of product.

What are the support value chain activities?

1. Procurement: how firm purchases inputs used in value chain

2. Technology development

3. HR management: activities involved in recruitment, hiring, training, development, compensation of personnel

4. General administration

What is the goal of value-chain analysis?

Determine how value is created and ensure value exceeds production cost

What are the three generic business strategies?

1. Overall cost leadership

2. Differentiation

3. Focus

What is overall cost leadership?

Achieving lowest cost via scale, experience, tight control, and value-chain cost minimization

What is differentiation?

Offering unique, valued products for which customers pay a premium

What is a focus strategy?

Targeting a niche market with either cost focus or differentiation focus

What is a combination strategy?

Integrating low-cost and differentiation to provide unique value efficiently

What are the three means of diversification?

1. Mergers & acquisitions

2. Strategic alliances/joint ventures

3. Internal development

What is related diversification?

Diversifying into businesses with shared activities, technologies, or markets.

Enables a firm to benefit from horizontal relationships across different businesses.

What is unrelated diversification?

Diversifying into businesses with little similarity using corporate parenting or restructuring

enables a firm to benefit from vertical or hierarchical relationships between the corporate office and individual business units

What is vertical integration?

Becoming one's own supplier (backward) or distributor (forward)

What are transaction costs?

Costs of market exchanges such as search, negociating, contracting, monitoring, enforcement, admin. etc.

What are benefits of divestment?

Cutting losses of failed acquisition, refocusing on core, freeing resources, raising cash

What are the four components of Porter’s Diamond?

1. Factor endowments (resources) - skilled workers, tech. infrastructure

2. Demand conditions

3. Related/supporting industries

4. Firm strategy/structure/rivalry

What are the four international strategies?

International, global, multidomestic, transnational

What is an international strategy?

Centralized knowledge exploitation with low need for local adaptation

• Requires diffusion and adaptation of the parent company’s knowledge and expertise to foreign markets.

What is a global strategy?

Implies a firm is interested in lowering costs.

• Standardized products, centralized operations, strong reducing cost pressures

What is a multidomestic strategy?

puts emphasis on differentiating products and services to adapt to local markets.

• Decentralized, locally adapted products and services

What is a transnational strategy?

seeks global competitiveness via trade-offs.

• Efficiency versus local adaptation versus organizational learning.

What are risks of international expansion?

1. Political

2. Economic

3. Currency

4. Management/cultural risk

What are the two phases of opportunity recognition?

Discovery and evaluation

What qualities make an opportunity viable?

1. Attractive

2. Achievable

3. Durable

4. Value-creating

What are the three entrepreneurial entry strategies?

1. Pioneering

2. Imitative

3. Adaptive

What is pioneering entry?

Creating entirely new solutions or industries

What is imitative entry?

Adopting proven ideas in new segments or doing them better

What is adaptive entry?

Offering products somewhat new and sufficiently different to create new value

Why do firms launch competitive actions?

To improve market position, grow demand, expand production capacity, innovate, gain first-mover advantage, grow business

What is threat analysis?

Assessing market commonality and resource similarity with rivals.

it’s checking how much a competitor can hurt you

What are strategic competitive actions?

Major long-term moves like entering markets, new products, production capacity changes, mergers/alliances

What are tactical competitive actions?

Price cuts, product/service improvements, increasing marketing efforts, new distribution channels

What affects likelihood of competitive reaction?

1. Market dependence

2. Resources

3. Reputation of attacker

Who are the three participants in corporate governance?

1. Shareholders

2. Management

3. Board of directors

What is agency theory?

Explains conflicts between principals (owners) and agents (managers)

What makes an effective board of directors?

Independence

Active involvement

CEO evaluation

Oversight of rewards

Discussing forward looking strategic issues.

What are external governance mechanisms?

(outside forces that help keep a company honest/accountable)

Market for corporate control

Auditors

Banks

SEC

Media/public activists

What does strategic leadership involve?

Transforming organizations from what they are to what the leader would have them become.

• by setting direction, designing structure, nurturing culture, overcoming Barriers to Change, Effective Use of Power, Emotional Intelligence

How do leaders nurture ethical culture?

• Accept personal responsibility for developing and strengthening ethical behavior.

• Consistently demonstrate that such behavior is central to the mission and vision of the firm.

•  Develop and reinforce ethical behavior

What are elements of a highly ethical organization?

Ethical role models

credos/codes of conduct

ethical rewards

enforced policies

What are the five components of emotional intelligence?

1. Self-awareness

2. Self-regulation

3. Motivation

4. Empathy

5. Social skills

What are the three components of strategic control?

1. Informational control

2. Behavioral control

3. Corporate governance

What is informational control?

Determining whether the firm is doing the right things based on external/internal environment

What is behavioral control?

Ensuring the organization is doing things right via culture, rewards, and boundaries/ implementation of its strategy.

What is the traditional approach to strategic control?

 is sequential. Involves lengthy time lags, “single-loop” learning.

1.Strategies are formulated, goals are set.

2.Strategies are implemented.

3.Performance is measured against predetermined goals.

What is the contemporary approach to strategic control?

Continuous, interactive process with real-time (face-to-face) feedback and debate, constantly changing info

What are the three levels of behavioral control?

Culture

Rewards

Boundaries

Valuable traits of successful leaders:

1. Technical skills: acct.; operations research

2. Cognitive abilities: analytical reasoning, quantitative analysis

3. Emotional Intelligence: Self-awareness, self-regulation, motivation, empathy, social skills.

Self-awareness (EI)

the ability to know your own emotions, drives, values, and goals as well as recognize their impact on others

Self-regulation (EI)

The ability to control or redirect diruptive emotions and impulses and adapt to changing circumstances

Empathy (EI)

The ability to see and consider other people’s feelings especially when making decisions

Social Skill (EI)

The ability to build and manage people in the desired direction

Motivation (EI)

Being driven to achieve for the sake of achievement, not simply for money or status