MGMT Exam #1

Strategic planning function

- Define the Reason the Company Exists

- Define the Highest-Level Goals

- Develop and Implement Strategic Plans

- Identify When and How to Revise Strateg

Important executive activities:

Raise and maintain financial capital and serve as the face of the company + manage the board of directors (corporate governance)

Strategic planning is just....

a subset of strategic management

C-level executives

C stands for 'chief', so the meaning refers to the top management team/highest level bos of that level (Chair, CEO, CFO, etc.)

Who is the highest-ranking executive?

CEO

In the U.S., it is not uncommon for

one person to serve all three roles of the

Chairman, CEO, and President. This is somewhat less common in other countries

Separate the concept of strategy into five parts

- Strategic Management

- Strategic Planning (Process + Planning)

- "Realized" Strategy

- "Business Model"

Strategic Management

the entire set of activities that senior executives and boards of directors engage in while serving as a leader of their organization

Strategic Planning: Process Part

the set of activities associated with the

continuous analysis, formulation, implementation, measurement, and governance of the strategic plan

or of any ongoing, adaptive changes to the plan (end up being that the plan was)

Strategic Planning: Plan Part

the document itself, the document that houses the research,

milestones, resource allocations, scenarios (such as Base, Upside, and Downside Case), and the intended gameplan of the executive team and board

"Realized" Strategy

The course of action that an organization actually pursues, whether planned or reactive.

- intend what to do (plan) does not mean what they actually do

"Business Model"

The framework of assumptions (explicit or implicit) that guide how companies compete to establish and sustain a competitive advantage and to maximize risk-adjusted financial and non- financial returns.

- company strategy (how you plan to compete)

Military Strategy

categorized as a "Zero-sum, one-event game"

"one-event" game

Once a battle or war is won, there is no further competition

between the parties. (The opposing side is either dead or has surrendered

Military Versus Organizational Strategy

People like to use military strategy as an analogy for business strategy; the two are actually very different and seek to achieve very different objectives

Zero-sum ( "win-lose")

Proportional: One is better off, one is worse off)

Positive-sum ("win-win" )

Synergy: Both organizations are better off)

Negative-sum ("lose-lose")

Dysergy: Both organizations are worse off

Primary Objectives of Organizational Strategy, in Order of Priority

- Survival

- Competitive Parity

- Competitive Advantage

- Sustainable Competitive Advantage

Survival

Being able to continue to independently operate your organization, i.e., avoidance of bankruptcy (specifically, the liquidation form of bankruptcy)

Competitive Parity

Elimination of a Competitive Disadvantage

Competitive Advantage

Establishment a position of economic superiority over competitors

- Better than everyone else (economic strategy)

Sustainable Competitive Advantage

Establishment and maintenance of economic superiority over competitors that is very difficult or costly for other companies to eliminate over time

- Hard for people to copy -> holy grail for companies

Frederick Taylor

Mgt as a Science/ Labor Efficiency

Henri Fayol

Father of Modern Mgmt Theory

Peter Drucker

Effectiveness of Executives

Philip Selznick

Organizational-Level Theory

Alfred Chandler

Major Pioneer of Strategic Mgt Though

Igor Ansof

Father of Strategic Planning

Michael Porter

Popularized Modern Competitive Strategy Theory; Created 5- Forces Model

Henry Mintzberg

Father of Emergent Strategy & 5 P's of Strategy

Gary Hamel

Famous Innovator, Core Competencies

Jay Barney

Father of Resource-Based Theory

STRATEGIC 'PLANNING' PROCESS

Strategic Intent ->Analysis->Formulation->Implementation

/ Launch->Measurement/ Evaluation->Control->

First issue in strategic planning (strategic intent)

Mission Statement

-> Don't include values or how or virtue signaling

Mission Statement

Is supposed to answer the question, "Why does the company exist" by specifying the business(es) it intends to compete in and the customers it intends to serve, but that's about all it's supposed to do

Formal Vision Statement

• Should answer the question, "What do we want to accomplish - specifically - in the future, and by when?"

• What the company seeks to become and when

Industrial organization (IO)

a branch of microeconomics, emphasizes the

influence of the external environment on the success or failure of the firm (This is the OT part of SWOT)

External Focus

Industrial organization (IO)

Resource-based theory

focuses more on the internal environment. In other

words, what the company owns or controls. From this perspective, performance is primarily a function of a firm's ability to utilize its resources, capabilities, and competences to gain and sustain a competitive advantage.

(This is the SW part of SWOT

Internal Focus

Resource-based theory

Contingency theory

What they're talking about is assessing the "fit"

between your company and the external environment. From this perspective, it's about trying to get your company's strengths and weaknesses to match with the opportunities and threats of the external environment.

• GAP analysis

strategic "fit"

Contingency theory

Seven basic attributes people often use to distinguish "strategic" decisions from other types of decisions

-Systematic / Fact-Based.

-Adaptive

-Long-term and Future-oriented

-External.

-Internal.

-Non-repetitive

- Trade-offs

Comparative advantages deal with (blank), and competitive advantage deals with (blank)

nations; companies

Globalization

increasing interdependence of economic, cultural, and political activities

deglobalization

refocus on nation-first policies

2 perspectives approach top executives should take to strategic management

Scientific Perspective and Artistic Perspective

scientific perspective

- Scholars endorsed→ Porter + Ansoff

- Strategic managers systematically assess the firm's external environment and evaluate the pros and cons of myriad alternatives before formulating a strategy.

Artistic Perspective

- Strategists should incorporate large doses of creativity and intuition to design a comprehensive strategy for the firm.

• Mintzberg

Strategic thinking

The application of the process and principles utilized in strategic planning sessions to ongoing strategic challenges.

Industrial organization

a firm must adapt to influences in its industry to survive and prosper; thus, its financial performance is driven primarily by the success of its industry

- more important for a firm to choose the correct industry within which to compete than to determine how to compete within a given industry.

Primary Influence on Firm Performance: IO

Structure of the industry

Primary Influence on Firm Performance: Resource-based theory

Firm's unique combination of strategic resources

Primary Influence on Firm Performance: Contingency Theory

Fit between the firm and its external environment

How Theoretical Perspective Is Applied to the Case Analysis: IO

Industry analysis portion of the external environment

How Theoretical Perspective Is Applied to the Case Analysis: Resource-based theory

Analysis of internal strengths and weaknesses

How Theoretical Perspective Is Applied to the Case Analysis: Contingency Theory

SWOT (strengths, weaknesses, opportunities, and threats) analysis and SW/OT matrix

Resource-based theory (book)

The perspective that views performance primarily as a function of a firm's ability to utilize its resources.

Distinctive competence

Unique resources, skills, and capabilities that enable a firm to distinguish itself from its competitors and create competitive advantage.

Sustained competitive advantage

A firm's ability to enjoy strategic benefits over an extended time

Contingency theory (book)

A view that the most profitable firms are likely to be the ones that fit best with their environment.

7 key distinctions mark strategic decisions: 1

- Strategic decisions have a broad impact on the organization.

- Systematic / Fact-Based. Based on a systematic, comprehensive analysis of internal and external factors

-

7 key distinctions mark strategic decisions: 2

- Strategic decisions have a long-term and future-oriented view but are built on knowledge about the past and present

- Long-term and Future-oriented. Usually several years to a decade or longer

7 key distinctions mark strategic decisions: 3

- Strategic decisions seek to capitalize on favorable situations outside the organization.

- Seek to capitalize on favorable situations outside the organization and protect against negative

situations

7 key distinctions mark strategic decisions: 4

- Strategic decisions are nonrepetitive and may not resemble the past, even remotely

- Non-repetitive. Often, executives deal with situations that lack precedence

7 key distinctions mark strategic decisions: 5

- Strategic decisions involve choices.

- Trade Offs. Sometimes "win-win" but often involves making difficult choices and trade-offs

Top-management team

A team of top-level executives—headed by the CEO—who all play instrumental roles in the strategic management process.

Global Imperative

- Although firms typically concentrate on serving local or domestic markets before expanding internationally, many must interact with entities in other nations to survive.

- even when firms in less developed countries lack a comparative advantage, they tend to operate in locales where their inefficiencies are less pronounced

Porter's five-forces model.

an industry's overall profitability (i.e., the combined profits of all competitors) depends on five fundamental competitive forces, the relative weights of which vary by industry

External environment 2 categories:

General Environment + Task (Industry) Environment

Task (Industry) Environment

The set of factors that directly influence a firm and its

competitive actions and responses, and the firm can directly

influence them back

General Environment

• Dimensions in the broader society that influence an industry and therefore the companies within it

• However, in general, firms cannot directly control or

significantly impact the segments of the General Environment

PORTER'S FIVE FORCES MODEL

- Part of the Task Eviornment

- focuses heavily on "power" and "threat"

-poly

Sellers

-sony

Buyers

It's not just the number of companies in an industry. The company(ies) must also...

ACT to price a product or service outside of 'competitive market' norms

Relearn monopoly

Behavior is the main determination, whether they are acting in a non-competitive way, then they aren't a monopoly.

- Ex. Boeing and Airbus, not a duopoly because they are competing strongly and not acting in a bad way

FIVE FORCES MODEL

- Seller Power: Forces you to pay above "normal" prices

- Threat of New Entry

- Threat of Substitutes: Cruise Ships vs Vegas Resorts

- Buyer Power: Forces you to sell at below "normal" prices

- Competitive Rivalry

Competitive Rivalry

Competition intensifies when a firm identifies the opportunity to improve its position or senses competitive pressure from other businesses in its industry.

BARRIERS TO ENTRY

economies of scale

product differentiation

capital requirement

switching costs

access to distribution channels

proprietary resources

cost disadvantages independent of scale

government policy

Government Policy (most impactful of all the barriers to entry.)

- Society provides governments with the ability to use physical or economic force to ensure that a law or policy is enforced. In addition, governments have become increasingly involved in business activity in a way that can provide a competitive advantage to one company over another.

- Governments often control entry to specific industries with licensing requirements or other regulations.

Herfindahl-Hirschman Index (HHI)

A sophisticated measure of market concentration calculated by summarizing the squares of the market shares for each firm competing in an industry.

HII example

An industry with five rivals, each holding 20% of the market, would be more competitive than an industry with one competitor holding a 65% market share position and 7 additional competitors holding 5% each. In this example, however, both industries would have the same four-firm concentration ratio, 80 (i.e., 20 + 20 + 20 + 20 in the first industry and 65 + 5 + 5 + 5 in the second industry).

- The HHI in the first industry would be 202 + 202 + 202 + 202 + 202, or 2,000, whereas the HHI in the second industry would be 652 + 52 + 52 + 52 + 52 + 52 + 52 + 52, or 4,400.

- The higher the HHI, the more concentrated the industry.2

HHI scores

above 1,800 to be concentrated and those below 1,000 to be "unconcentrated," often rejecting proposed mergers in the former category and approving those in the latter.

Competitive intensity often evolves and depends on multiple interacting factors:

- Concentration of Competitors

- High Fixed or Storage Costs

- Slow Industry Growth

- Lack of Differentiation or Low Switching Costs

- Capacity Augmented in Large Increments

- Diversity of Competitors

- High Strategic Stakes

High Fixed or Storage Costs

Firms with unused productive capacity and fixed costs often cut prices to increase production and move toward full capacity

The impact of fixed costs on competitiveness depends on the type of goods or services produced in an industry:

Rival good and non-rival good

Rival good

such as a soft drink or an oil change, can only be consumed by one person at a given time

non-rival good

A sitcom or a smartphone app, can be consumed simultaneously by multiple individuals.

- As competitors produce more non-rival goods, fixed costs play a greater role in industry competitiveness.

Slow Industry Growth

Firms in industries that grow slowly are more likely to be highly competitive than those in fast-growing industries because one firm's increase in market share must come primarily at the expense of rivals.

Lack of Differentiation or Low Switching Costs

Switching costs

- One-time costs the buyers of an industry's outputs incur as they switch from one company's products or services to another's.

- These are the one-time costs customers incur when they buy from a different supplier. The costs of buying

new equipment and training employees can be very large, which leads to higher switching costs and a lower chance that new companies will enter your industry.

Capacity augmented in large increments

When firms can increase production in small increments, overcapacity is not a significant concern.

Diversity of Competitors

Companies that are diverse in their origins, cultures, and strategies often have different goals and means of competition

High Strategic Stakes

Competitive rivalry is likely to be high if firms also have high stakes in achieving success in a particular industry.

Exit Barriers

economic, strategic, or emotional factors that keep companies from leaving an industry even though they are not profitable

Barriers to entry

Obstacles to entering an industry, including economies of scale, brand identity and product differentiation, capital requirements, switching costs, access to distribution channels, cost disadvantages independent of size, and government policy.

economies of scale

- the decline in unit costs of a product or service that occurs as the absolute volume of production increases. Scale economies occur when increased production drives down costs and can result from a variety of factors

- Not just about size. Fixed costs spread over units of production

Brand Identity and Product Differentiation

- Differentiation is crucial among products and services where the risks associated with switching to a competitive product or service are perceived to be high

- This describes a situation where customers believe that a product or service is better than another product or service; real or perceived (Clorox Bleach)