Strategic Management Exam 1

Organization

The broadest term used to describe a specific entity and applies to entities in all sectors: private (for-profit), governmental (public), and not-for-profit (including nonprofit, nongovernmental organizations [NGOs], and voluntary organizations)

• Organizations in the private sector are also referred to as businesses, companies, and firms

Business

a single company within an industry or an organization in the private sector that is engaged in commerce and aims to make a profit

Companies/Firms

organization in the private sector that is engaged in commerce and aims to make a profit

Organization/Business/Companies/Firms

used interchangeably

Industry

a group of organizations, businesses, companies, or firms that offer similar products and services and compete in the marketplace for profit

Concepts

ideas

Theories

Collections of concepts

• Business theories explain occurrences in the business world

Analytical Framework

provides a structured format for analyzing data

Strategic Management Frameworks

Provide a structured format to analyze company data as it relates to a major area of strategic management

• aka. Strategic Management Tools

Strategic Leadership

includes the responsibility, talent, capacity, power, and actions to steer an organization strategically through a dynamic market to create and sustain a competitive advantage and to become and remain an industry leader

Strategic Management

the dynamic and ongoing endeavor that follows a structured process to methodically and thoroughly analyze the environment, industry, and firm as well as to formulate and implement strategy

Strategy

A collection of organizational plans and processes that focus on creating and sustaining superior firm performance relative to a company’s competitors, which creates a sustainable competitive advantage

• Strategies are broad and long-range, with few specifics

• They do not typically address actions

Strategic Analysis

the process of applying strategic management concepts and theories as well as analytical frameworks and tools to conduct a thorough 360-degree analysis of a firm, enabling strategy managers to make evidence-based decisions about strategy formulation and strategy implementation in all areas of the company’s operations

• “Where are we?”

Strategy Formulation

The process of designing strategies throughout all levels and areas of an organization

• Successful strategy formulation relies on evidence-based decisions that are grounded in strategic analysis

• “Where are we going?”

Strategy Implementation

the process of executing the strategies that a company has formulated

• “How are we going to get there?”

Strategic Issue

The most important, urgent, broad, long-term matter that the company is facing

• Strategic issues require significant organizational talent and resources to resolve

• Addressing a strategic issue moves a firm toward its mission, purpose, and vision; therefore, the issue should be congruent with its values and goals

• A strategic issue focuses on the present and specific organization context, addressing what is happening with this firm, at this time, in this place, and under these circumstances

Strategic Alternative

an action that addresses and has the potential to resolve every aspect of a strategic issue

Corporate-Level Strategy

a companywide strategy that focuses on creating and maintaining a firm’s competitive advantage by creating synergy within and beneath multiple industries, markets, market segments, and businesses across multiple industry value chains and in different geographical locations

Market

refers to the overall pool of potential customers for a product or service within a specific industry

Market Segment

a distinct group within a market that is identified by shared characteristics like demographics, needs, or behaviors

Business-Level Strategy

Focuses on how to compete within an organization’s chosen market and market segments to create and sustain competitive advantage

• Addresses a firm’s strategic market position (whether it chooses a cost leadership or differentiation approach) and its strategic market size (whether it competes in a focused market segment or a broad segment)

Strategic Business Unit

a fully functional unit of a business that has its own vision and direction and is part of a larger organizational unit like a division

Innovation Strategies

strategies that are embedded into business-level strategies at the strategic business unit level that focus a firm’s approach to innovation so that it can create and sustain a competitive advantage

Sustainability Strategies

Meant to reduce adverse environmental and social impacts resulting from business operations while still pursuing profitable growth

• Such strategies include corporate and social responsibility (CSR) strategies and environmental, social, and governance (ESG)

Business Ethics Strategies

strategies that are embedded into business-level strategies at the strategic business unit level that include a company’s approach to increasing ethical behavior and focus the firm on remaining legally compliant

Technology Strategies

involves the use of digital technology to improve an organization’s processes, operations, products, and services

Multinational Corporation (MNC)

a firm that has operations in more than one country

Multinational Strategies

Strategies that are embedded into business-level strategies at the strategic business unit level that address different ways to position the company in multinational markets

• These include international, multidomestic, global, and transactional strategies

Functional-Level Strategy

focuses on implementing strategy in business support units

Business Support Units

focus on specific business functions, such as accounting, business information technology, business law, finance, human resource management, marketing and sales, supply chain management, operations, and procurement

Business Functions

include essential areas such as accounting, business information technology, business law, finance, human resource management, marketing and sales, supply chain management, operations, and procurement

Intended Strategy

The strategy that an organization an organization plans to implement

• It is one strategy in Mintzberg and Waters’s (1985) model that considers intended, deliberate, emergent, realized, and unrealized strategies

Deliberate Strategy

the strategy that a firm implements as a planned response to alter, but not completely change an intended strategy in the face of dynamic conditions

Emergent Strategy

A completely new and unplanned strategy that is formulated in response to unexpected circumstances, which most often originate from a firm’s external environment

• It is completely different than the intended strategy and requires a change of strategic direction

Realized Strategy

The strategy that an organization follows over time

• Includes a firm’s planned intended strategy as amended to take into account any changes that arise in a dynamic environment as reflected in a company’s deliberate strategy

• Also include an emergent strategy if an unanticipated and completely new opportunity has arisen and the firm has been nimble and quick enough to capitalize on it

Unrealized Strategy

The abandoned parts of the intended strategy

• It is one strategy in Mintzberg and Waters’s (1985) model that considers intended, deliberate, emergent, realized, and unrealized strategies

Case Analysis

an umbrella term that means applying strategic management concepts and theories alongside analytical frameworks and tools to analyze, interpret, and evaluate company information through a written scenario that uses real or hypothetical data about a company, by researching a company, or by working directly with a company through a consultancy project

Data

the information in the case being reviewed, in the company being researched, or in the company receiving consulting services

Analysis

The process and result of examining all the data available for the firm and identifying and classifying all the data for each category in a strategic management tool

Step 1 — Examine

Step 2 — Identify

Step 3 — Classify

Step 4 — Complete

Interpretation

The process and result of examining analysis through critical thinking to identify and explain relationships in the analysis and underlying root causes of the situation

• Is not found in the case or company research

Step 1 — Examine

Step 2 — Determine whether and how the information is related

Step 3 — Identify and Explain root causes

Step 4 — Complete

Evaluation

The process and result of examining the analysis and interpretation to identify and explain the meaning of the information to the company by considering its impact, relevance, and importance to the company and by identifying the company’s current, potential, or needed assets, organizational capacity, and managerial ability that may support or mitigate the areas of highest impact, relevance, and importance for the firm

Step 1 — Examine

Step 2 — Identify and Explain the Impacts

Step 3 — Identify and Explain if/how the information is Relevant

Step 4 — Determine how Important the information is

Step 5 — Identify Assets, Capacity, and Ability

Step 6 — Complete

Line of Sight

there is a direct and clear logic connecting two or more concepts or ideas

Congruence

Means there is a one-to-one relationship between two or more things

• Refers to one-to-one reconciliation between steps in the case analysis process or across an entire strategic analysis

Mission Statement

explains why an organization exists

Purpose Statement

articulates its reason for existence beyond just profit-making

Vision Statement

a forward-looking or aspirational statement that captures what a company or organization wants to achieve in the long run

Value Statement

define the core principles that companies stand by and expect their employees to uphold

Performance Measures

metrics used to track an organization’s progress, such as profits, stock prices, or sale figures

Performance Benchmarks

standards or reference points used to evaluate an organization’s metrics by comparing them to historical data, industry standards, or the performance of competitors

Types of Financial Measures

• Liquidity Measures

• Leverage Measures

• Profitability Ratios

• Efficiency Ratios

• Market Value

Liquidity Measures

• Current Ratio (CR) = Current Assets / Current Liabilities

  • Indicates ability to pay short-term obligations

Leverage Measures

• Debt Ratio (DR) = Total Liabilities / Total Assets

  • Shows the proportion of assets financed through debts (aka paid for with borrowed money)

Profitability Ratios

• Gross Margin (GM) = Gross Profit / Total Revenue

  • Percentage of revenue remaining after direct costs

• Net Profit Margin (NPM) = Net Profit / Net Revenue

  • Shows profit earned per dollar of revenue

• Return on Equity (ROE) = Net Profit / Shareholder Equity

  • Measures profitability relative to equity financing (aka paid for by stocks/shares)

• Return on Assets (ROA) = Net Profit / Total Assets

  • Assesses efficiency in using assets to generate profit

• Return on Investments (ROI) = (Net Profit / Investment Cost) * 100

  • Assesses profitability relative to the cost of investment

Efficiency Ratios

• Inventory Turnover (IT) = COGS / Average Inventory

  • Indicates how efficiently inventory is managed (aka selling/restocking)

• Accounts Receivable Turnover (ART) = Net Credit Sales / Average Accounts Receivable

  • Assesses efficiency of accounts receivable management

Market Value

• Market Capitalization (MC) = Shares Outstanding * Shares Price

  • Reflects the overall market value of the company

• Earnings per Share (EPS) = Net Income / # of Outstanding Shares

  • Shows the profitability attributed to each share of stock

• Net Profit = Total Revenue - Total Expenses

  • Reflects the overall profit a company generates

• Stock Price = The market valuation of one share of the company

  • Indicates how investors perceive the company’s future performance

Market Share

= Firm’s Total Product Revenue / Total Revenue in the Industry

• Reflects the percentage of the market controlled by a company

Price-Earnings (PE) Ratio

= Stock Price / Earnings Per Share (EPS)

• Shows how much investors are willing to pay for $1 in earnings

Balanced Scorecard

a management system that evaluates a company using 4 measures: financial measures, customer measures, internal business processes measures, and employee learning and growth measures

Customer Measures

Evaluate how well a company attracts, satisfies, and retains customers

• Include new customer acquisition rates, customer satisfaction scores, and repeat customer percentages

• “How do customers view us?”

Internal Business Process Measures

Measure organizational efficiency

• Include production times, delivery efficiency, and new product development speed

• “What must we excel at?”

Learning and Growth Measures

Measure how an organization can continue to innovate and create future value

• Focus on employee development, innovation capabilities, and adapting to changing market conditions

Economic Value Creation (EVC)

= Willingness to Pay (WTP) - Cost

Competitive Advantage

refers to the unique characteristics and capabilities of a firm that allow it to outperform its competitors in economic value creation

External Environment

includes everything outside a company that influences its ability to create and sustain a competitive advantage

General Environment

The broadest level of a firm’s external environment and includes societal events and trends that impact all firms in an industry

• Sometimes referred to as the macro environment

• PESTEL

Industry Environment

consists of the forces that exert influence and pressure over the entire industry in which a firm functions

• Porter’s Five Forces

Porter’s Five Forces

• Threat of New Entrants

• Threat of Substitute Products

• Bargaining Power of Suppliers

• Bargaining Power of Buyers

• Rivalry Among Existing Competitors

Threat of New Entrants

how easily new companies can enter the industry and compete with existing companies

Threat of Substitute Products

How easily customers can switch to a different product or service that meets the same need

Bargaining Power of Suppliers

How much influence suppliers have over the prices and terms they charge businesses

Bargaining Power of Buyers

How much influence customers have over the prices and terms they receive from businesses

Rivalry Among Existing Competitors

How strongly existing companies in the industry compete with each other

Competitive Environment

consist of companies that pursue similar strategies in the same industry

• strategic group mapping

Competitor

a business within the same industry that offers similar products or services and competes for customers

PESTEL Framework

the strategic management framework that is used to analyze the general environment of a company

• Political

• Economic

• Sociocultural

• Technological

• Environmental

• Legal

Administrative Law

made by U.S. federal executive governmental agencies and forms the basis of federal regulations, many of which impact businesses

Presidential Executive Order

issued by the POTUS and gives directives that may impact businesses

Substitute

a product or service that comes from outside the existing industry, but fills the same need for existing industry customers while offering some additional value

Differentiation

A strategic market position that focuses on customer preferences for high quality products

• The company competes primarily by offering products that are notably unique from others in its chosen market in terms of quality

Strategic Group

consists of companies that pursue similar strategies in the same industry

Strategic Group Mapping

the strategic management framework used to analyze industry competitors that have similar characteristics to each other and differ in important ways from the companies in other strategic groups

Internal Environment

includes everything inside a company that influences its ability to create and sustain a competitive advantage

Resources

the tangible and intangible assets owned by a company

Capabilities

refer to the organizational and managerial abilities to orchestrate a diverse set of resources and deploy them strategically, driving competitive differentiation and adding value to customers

Core Competencies

unique strengths, embedded deep within a firm, that allow the firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost

Dynamic Capability

refers to an organization’s ability to use its existing resources continually in creating new core competencies and enhancing, upgrading, and improving existing capabilities to satisfy customers and beat competition

VRIO Framework

identifies sources of a sustainable competitive advantage for a firm by analyzing whether resources, capabilities, and core competencies are valuable, rare, hard to imitate, and organized to capture value

• Valuable

• Rare

• Inimitable

• Organized

Isolating Mechanisms (aka Barriers to Imitation)

prevent competitors from replicating the resource, capability, or core competency that provides a sustainable competitive advantage

Intellectual Property (IP)

concerns the legal rights that individuals or organizations have over their intellectual creations, granting them control and protection from unauthorized use by others

Value Chain Analysis (VCA)

A systematic process for evaluating the steps involved in creating a product or service, from the initial design to delivery to the customer

• The analysis helps to deliver the most value at the lowest cost and helps to identify strengths and weaknesses a firm needs to address in the strategy formulation process

SWOT Framework

A tool used to categorize a firm’s:

• Strengths

• Weaknesses

• Opportunities

• Threats

Synthesize

to review, critically examine, and combine diverse elements into a coherent whole

Major Areas of Strategic Concern

the most urgent areas that a firm needs to address immediately to ensure its success now and in the future

Triple Bottom Line

A way for a company to measure success based on three areas, not just profit:

1. People 👥 — How the company affects employees, customers, and society.

2. Planet 🌎 — How the company affects the environment.

3. Profit 💰 — How financially successful the company is.

Cost of Goods Sold (COGS)

= Beginning Inventory + Purchases - Ending Inventory

• The direct cost of the products a company sold during a period

• Tells you how much the company spent on the inventory that it actually sold

Example.

• BI = $10,000

• Purchases = $30,000

• EI = $8,000

COGS = $10,000 + $30,000 - $8,000 = $32,000

• So the company had $32,000 worth of inventory costs associated with the goods it sold

Resourced-Based-View (RBV)

says that a company can gain a competitive advantage by having valuable resources and capabilities that competitors cannot easily obtain or copy