Exam 2

Failure rate for new businesses

50% within 5 years and 66% within 10 years due to poor planning

Business plan

A document that outlines a firm’s goals, the strategy for achieving them, and the standards for measuring success

Strategy

Sets the long-term goals and direction for an organization (reconsidered annually)

Strategic Management

A process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals.

Which groups are involved in strategic management

All parts of the organization (top managers, first-line managers, and team leaders)

Strategic planning

Top managers

Process that determines what the organization’s long-term goals should be for the next one to five years with the resources they expect to have available

Tactical planning

Middle managers

Determine what contributions their departments or work units can make with their given resources during the next 6-24 months

Operational planning

First-line managers and team leaders

Direct daily tasks of non-managerial personnel

Predictable decisions following a well-defined set of routine procedures

Planning and Strategic Management Flow

1. Establish the mission, vision, and values

2. Assess he current reality

3. Formulate the strategies and plans

4. Implement the strategies and plans

5. Maintain strategic control

Reasons to adopt planning and strategic management

1. Provides direction/momentum

2. Encourages new ideas

3. Helps develop a sustainable competitive advantage

Strategy innovation

The ability to reinvent the basis of competition within existing industries

Mission Statement

Expresses the purpose of the organization

Vision Statemet

Expresses what the organization should become, where it wants to go strategically.

(Should be clear, have a future focus, be difficult yet achievable, and portray a highly idealized future)

Values Statement

Expresses what the company stands for, its core priorities, the values its employees embody, and what its products contribute to the world.

Objective

(Goal) Specific commitment to achieve a measurable result within a stated period of time

Strategic Goals

Long term goals

Span one to five years and focus on achieving the strategies identified in a company’s strategic plan

Tactical/operational goals

Short-term goals

Generally span 12 months and are connected to strategic goals in a means-end chain

Means-end chain

Shows how goals are connected across an organization

Operating plan

A plan that breaks long-term output into short-term targets

Action plan

Defines the course of action needed to achieve a stated goal

Contingency plans

Responses to possible future events that could threaten a company’s operations

SMART goals

Specific, measurabke, attainable, results-oriented, and has target dates

Management by Objectives (MBO)

Peter Drucker

Four step process meant to motivate (instead of control):

Managers and employees jointly set objectives for the employee

Managers develop action plans

Managers and employees periodically review the employee’s performance

Managers make a performance appraisal and rewards the employee according to results

Proactive Learning orientation

A desire to learn and improve one’s knowledge, soft skills, and other characteristics to pursue personal development

Cascading goals

The process of ensuring that the strategic goals set at the top level align downward with ore specific short-term goals at lower levels

Strategic goals - divisional goals - departmental goals - individual goals

Planning/Control cycle

Continuous process managers use to evaluate the progress in achieving strategic goals and to make modifications if needed

1. Formulate the strategic plan

2. Implement the strategic plan

3. Monitor progress

4. Take action

Strategic Positioning

Achieving sustainable competitive advantage by preserving what is distinctive about a company

Three types of strategic positions

1. Few needs, many customers (one product that has diverse options to meet multiple audiences)

2. Broad needs, few customers (multiple products that are meant for a specific demographic)

3. Broad needs, many customers (many products for many demographics)

Corporate-level strategy

Focuses on the entire organization

“What business are we in?”

“What products and services do we offer”

Business-level strategy

Focuses on individual business units or product/service lines

“How much to spend on marketing”

“What new products should we make”

Functional-level strategy

A plan of action to support higher level strategies

Tactical issue focus

Current Reality Assessment

(Organizational assessment)

Where the organization stands, what’s working, and what can change to maximize efficiency and effectiveness

Strategy formulation

The process of choosing among different strategies and altering them to best fit the organization’s needs

Strategic Control

Monitoring the execution of strategy and making adjustments

Sustainable Competitive Advantage

When other companies cannot duplicate the value delivered to customers

SWOT Analysis

Situational analysis where a company assesses its strengths, weaknesses, opportunities, and threats

Internal: Strengths, weaknesses

External: Opportunities, threats

PESTEL

Helps analyze macro opportunities and threats

Political

Economic

Social

Technological

Environmental

Legal

VRIO

Framework for analyzing a resource or capability to determine its competitive strategic potential (yes to all means competitive advantage)

Value

Rarity

Imitability

Organization

Forecast

A projection of the future

Trend Analysis

a hypothetical extension of a past series of events into the future

Scenario Analysis

Creation of alternative hypothetical but equally likely future conditions

Benchmarking

Process by which a company compares its performance with that of high-performing organizations

Growth Strategy

A grand strategy that involves expansion (sales revenues, market share, number of employees, or customers served)

Stability Strategy

A grand strategy that involves little or no significant change

Defensive Strategy

(Retrenchment strategy)

A grand strategy that involves reduction in the organization’s efforts

BCG matrix

Evaluating portfolios of strategic business units on the basis of their market growth rates and market share

Market growth rate

How quickly the entire industry is growing

Market share

Business unit’s share of the market in relation to competitors

BCG: Question Mark

High market growth, low market share

Invest cautiously

BCG: Star

High market growth, high market share

Invest

BCG: Dogs

Low market growth, low market share

Divest

BCG: Cash cows

Low market growth, high market share

Redirect profits

Diversitfication

Moving into new lines of business

Related Diversification

When a company purchases a new business that is related to the company’s existing business portfolio

Vertical Integration

When a firm expands into businesses that provide the supplies it needs to make its products or that distribute and sell its products

Porter’s model for industry analysis

Five competitive forces in a firm’s environment

1. Threats of new entrants

2. Bargaining power of suppliers

3. Bargaining power of buyers

4. Threats of substitute products or services

5. Rivalry among competitors

Porter’s four competitive strategies

1. Cost-leadership

2. Differentiation

3. Cost-focus

4. Focused differentiation

Cost-leadership Strategy

Wide-market

Keep costs and prices of a product/service below those of competitors

Differentiation Strategy

Wide-market

Offer products/services that are unique and superior value compared to competitors

Cost-focus strategy

Narrow Market

Keeping costs and prices lower than competitors to target a narrow market

Focused-differentiation strategy

Narrow Market

Offering products/services that are unique and of superior value compared to those of competitors to target a narrow market

Corportate Culture

(Organizational culture)

Set of shared, implicit assumptions that a group holds which determines how it perceives, thinks about, and reacts to its various environments

Organizational structure

A formal system of task and reporting relationships that coordinates and motivates an organization’s members so that they can work to achieve the organization’s goals

Human Resource Practiices

All actibities an organization uses to manage its human capital

(staffing, appraising, training, development, compensation)

Organization Culture Levels

Observable artifacts

Espoused Values

Basic Assumptions

Observable artifacts

Physical manifestations (dress, awards, myths, stories, rituals)

Easiest to influence

Espoused Values

Explicitly stated values and norms preferred by an organization (set by the founders)

Enacted Values

Values and norms actually exhibited in the organization

Competing Values Framework (CVF)

Provides a practical way for managers to understand, measure, and change organizational culture

Four types of organizational cultures:

1. Clan

2. Adhocracy

3. Market

4. Hierachy

Horizontal dimension

Inward or outward focus

(focusing on internal dynamics vs outside shareholders)

Vertical Dimension

Flexibility or stability

(whether the organization prefers decentralized decision making vs centralized authority)

Clan Culture

Internal Focus with flexibility

Strong sense of identification with and commitment to the organization

Adhocracy culture

External focus with flexibility

Desire to create new and innovative products

Market Culture

External focus with stability

Focused on making money, achieving goals, gaining market share

Hierarchy Culture

Internal with control

Mechanisms that help the company maintain a certain level or performance and efficiency according to a schedule

Four Features of Organizations

Edgar Schein

1. Common purpose

2. Coordinated effort

3. Division of labor

4. Hierarchy of Authority

Common purpose

Unifies employees or members and gives everyone an understand of the organization’s purpose

Coordinated Effort

The coordination of individual efforts into a group or organization wide effort

Division of labor

(Work specialization)

The arrangement of having discrete parts of a task done by different people

Hierarchy of authority

(Chain of command)

A control mechanism for making sure the right people do the right things at the right time

Flat organization

An organization with structure that has few or no levels of middle management between top managers and employees

Unity of command

An employee should report to no more than one manager in order to avoid conflicting priorities and demands

Span of control

(Span of management)

The number of people reporting directly to a given manager

Narrow = limited number of people reporting

Wide = several people reporting

Authority

The rights inherent in a managerial position to make decisions, give orders, and utilize resources

Accountability

Managers must report and justify work results to the managers above them

Responsibility

Obligation to perform tasks assigned to you

Delegation

The process of assigning managerial authority and responsibility to managers and employees lower in the hierarchy

Centralized authority

Important decisions are made by higher ups

Decentralized authority

Important decisions are made by middle-level with supervisory-level managers

Organizational Design

Designing the optimal structures of accountability and responsibility that an organization uses to execute its strategies

Traditional Designs

1. Simple

2. Functional

3. Divisional

4. Matrix Structures

Simple Structure

Done in early entrepreneurial stages

Authority is centralized in a single person

Flat hierarchy

Few rules

Low work specialization

Functional Structure

People with similar occupational specialties are put together in formal groups

Divisional Structure

People with diverse occupational specialties are put together in formal groups by similar products or services, customers or clients, or geographic regions

Matrix structure

An organization that combines functional and divisional chains of command in a grid so there are two command structures (vertical and horizontal)

Horizontal Structure

(Team-based design)

Teams are used to improve collaboration and work on shared tasks by breaking down internal boundaries

Boundaryless Organization

Fluid, highly adaptive organization whose members, linked by IT, collaborate on common task

Hollow structure

(Network structure)

Organization has a core of key functions and outsources other functions to vendors who can do them cheaper or faster

Modular Structure

Assembles product chunks, or modules, provided by outside contractors

(Outsources pieces of a product rather than its processes)

Virtual Structure

Employees are geographically spread apart, co-working remotely, appearing to be a single, unified organization