MGT 4394 Midterm Exam (Chapters 1-6; Methanex)

strategic management

an ongoing process used by firms to set an organizational vision, analyze the external, competitive, and internal environments, and develop strategies for success; the formulation and implementation of the major goals and initiatives taken by a company's top management on behalf of owners based on consideration of resources and an assessment of the internal and external environments in which the organization competes

key question answered by strategic management

why do some firms outperform other firms?

strategy

a broad goal that an organization needs to be achieve to be successful in the marketplace; a higher-level, broad goal, without a lot of specifics and long-term in nature

3 principles underlying strategy

creating a unique and valuable position, making trade-offs by choosing what not to do, creating fit by aligning company activities with one another to support the chosen strategy

2 major processes of strategic management

formulation of strategy, implementation of strategy

5 types of strategy

intended, emergent,
deliberate, realized, and unrealized

intended strategy

the strategy an organization hopes to execute; described in detail in strategic plan

emergent strategy

an unplanned strategy that arises in response to unexpected opportunities and challenges

realized strategy

the strategy that an organization actually follows; a product of intended strategy, deliberate strategy, and emergent strategy

deliberate strategy

the parts of the intended strategy that the firm continues to pursue over time

unrealized strategy

a strategy that was developed but not accomplished; the abandoned parts of the intended strategy

SWOT analysis

strengths, weaknesses, opportunities, threats; incorporates idea of scanning elements both internal and external to the firm

strategic issue

the primary matter facing the organization, typically long-term in nature; requires significant commitment of attention and resources; difficult or impossible to avoid; likely the result of multiple causes

3 questions to answer for strategic management

where are we?; where are we going?; how are we going to get there?

organizational performance indicators

quantitative measures that indicate how an organization performs in comparison to historical trends and/or competitors; answers "where are we?"

examples of organizational performance indicators

quality measures, productivity measures, HR indicators, customer satisfaction/retention

vision

what the organization hopes to become, its aspirational goal for the future; the big goal it wants to accomplish; developed within the mission and aligned with core values

mission

an organization's purpose, why it exists, beyond making a profit; captures key elements of the past and present

core values

the important guiding principles of an organization that every employee should embrace; side rails for strategies

strategies

a broad goal that an organization needs to achieve to be successful in the marketplace; developed to work towards vision; answers "how are we going to get there?"

goals

narrower targets that should provide clear and tangible guidance to employees as they perform work on daily basis; created to achieve vision and mission

SMART goals

goals that are specific, measurable, attainable, realistic, and time-bound; the most effective goals

value statement

the explicit principles that are important to an organization, that all employees should adopt and live by; need to be considered when developing strategies and goals

performance measure

quantitative measures that indicate how an organization performs in comparison to historical trends and/or competitors; examples are profits, stock prices, sales

performance benchmark

reference points that a firm can use to compare its performance against others

current ratio

liquidity measure that tells if obligations can be paid when due; if above 1.0, firm has enough cash to pay its bills

debt-to-equity ratio/debt ratio

leverage measure that tells if debt level is high, the extent to which borrowed money is used

net income

profitability measure that tells how much profit is being made

3 main areas of organizational performance

financial (ROI, debts, profits, stock price), market (market share, new products), shareholder value

competitive advantage

when the economic value creation of a firm is greater than its competitors; equals WTP (willingness to pay) minus Cost (cost incurred to produce product)

2 components of competitive environment

the general environment, the industry

the general environment

macro-environment; includes overall trends and events in society such as social trends, technological trends, demographics, and economic conditions; cannot be controlled

the industry/competitive environment/task environment

consists of multiple organizations that collectively compete with one another by providing similar products; includes competitors, customers, suppliers

PESTEL analysis

general environment analysis that evaluates 6 forces on industry macro-environment; political, economic, sociocultural, technological, environmental, legal; impact can be positive or negative

Political

segment centers on the role of governments in shaping business; tax policies, trading, tariffs, stability, immigration, political positions

Economic

segment centers on economic conditions within which organizations operate; interest rates, inflation, GDP, unemployment, growth/decline of economy; MOST INFLUENTIAL for non-essential luxury goods!

Sociocultural

segment which includes trends in demographics and culture; population, age, ethnic mix, attitudes, consumer activism, tastes and preferences, concerns

Technological

segment centers on scientific improvements in products and services; new products, automation, delivery, communication technology, AI

Environmental

segment involving physical and ecological conditions; natural disasters, pollution, climate change, weather patterns, energy, natural resource availability, environmental regulation

Legal

segment centers on how courts and laws influence business activity; employment laws, health and safety regulations, discrimination laws, antitrust laws

Porter's Five Forces Analysis

identifies how much profit potential exists in an industry; threat of potential entrants, bargaining power of suppliers, competitive rivalry, bargaining power of buyers, threat of substitutes

evaluating Porter's Five Forces

if none of the forces undermine profits, the profit potential is strong; if the forces work to undermine profits, the profit potential is weak

threat of potential entrants

firms not currently considered viable competitors in industry but may become viable competitors in the future; high barriers to entry mean safer defensive position and low threat of new entrants

bargaining power of suppliers

those that provide inputs firms in an industry need to create products to sell to buyers; can suppliers demand higher prices, number of suppliers, relationships with suppliers

competitive rivalry

firms that produce similar products/services; high rivalry reduces profit potential, price wars

bargaining power of buyers

firms that buy directly from industry or end users; can buyers demand lower prices, many options, number of buyers

threat of substitutes

offerings that differ from product provided by competitors in an industry but fill similar needs; examples are satellite TV and streaming services and cable or soda and sports drinks

substitutes

product or service that comes from outside the existing industry but fills the same "need" while offering some additional value; can disrupt industry

strategic groups

sets of firms that follow similar strategies to one another or have similar characteristics within an industry; competitive factors on two axes

2 methods of internal assessment

Resource-Based View (RBV) and Value Chain Analysis

Resource-Based View (RBV)

model that examines any resources or capabilities of the firm that may provide a competitive advantage; done via VRIO analysis; the whole is greater than the sum of its parts

Value Chain Analysis

each element of a firm's primary and support activities are examined to find competitive advantages; can identify weaknesses to be addressed and places to add value

strategic resources

a resource that is valuable, rare, difficult to imitate, and organized to capture value

valuable

resources that help improve organizational effectiveness and efficiency in face of competition

rare

resources held by few or no other companies

difficult to imitate

resources with legal protections or those that take time to develop fully (brand name); hard to duplicate

organized to capture value

having systems, processes, structure to capitalize on potential of resources to provide competitive advantage

resource

what an organization owns; assets for strategy that can be tangible or intangible

tangible resources

those that can be readily seen, touched, and quantified; cash, equipment, property

intangible resources

those that are difficult to see, touch, or quantify; more likely to meet criteria for strategic resources than tangibles; reputation, knowledge, patents, skills, brand names, culture, advertising

capability

what the organization can do; abilities that deploy a diverse set of resources; customer service, procurement, development process, innovation

core competence

unique strengths, embedded deep within a firm to differentiate its products from rivals

dynamic capability

exists when firm has unique ability to create new capabilities to keep pace with changes in environment

distinctive competence

a set of activities that an organization performs especially well

VRIO analysis

if not valuable = competitive disadvantage; if not rare = competitive parity; if not difficult to imitate or organized to capture value = temporary competitive advantage; if all 4 = sustained competitive advantage

intellectual property

creations of the mind; some protected by law, others best defended by secrecy

4 main types of intellectual property

patents, trademarks, copyrights, trade secrets

patents

legal decrees that protect inventions from direct imitation for a limited period of time

trademarks

phrases, pictures, names, or symbols used to identify a particular organization; give identity and niche

copyrights

provide exclusive rights to the creators of original artistic works such as books, movies, songs, and screenplays for an author's lifetime plus 70 years; can be sold and licensed; piracy is an issue

trade secrets

refer to formulas, practices, and designs that are central to a firm's business and that remain unknown to competitors; examples are KFC spice blend, Coke formula

isolating mechanisms

methods that prevent a competitor from imitating the resource or capability that provides a competitive advantage so the firm can sustain the advantage longer

3 isolating mechanisms to lessen likelihood of imitation

social complexity, path dependence, and causal ambiguity

social complexity

the interrelationships within a firm and its networks and history; certain customer or supplier relationships or with key political figures

path dependence

the historical path a firm takes over time, including decisions, accumulated learning, and experience gained

causal ambiguity

the reason for achieving a competitive advantage is not apparent, and therefore difficult to imitate

value chain

the paths and steps by which products are created and sold to customers, including primary and supporting activities; overall intent is to produce profit margin, find weaknesses to improve, AND ADD VALUE

primary activities in value chain

inbound logistics (arrival of raw materials), operations (production process), outbound logistics (movement of product to customer), marketing and sales, service (assisting customers)

support activities in value chain

firm infrastructure (how firm is organized and led), human resource management (recruitment, training, compensation), technology development, procurement (inventory and raw materials)

SWOT techniques

leverage strengths, mitigate or resolve weaknesses, capitalize on opportunities, and protect against threats; brainstorming tool

strategic issue

primary matter faced by an organization that must be addressed or resolved to survive, excel, or achieve a goal

characteristics of strategic issues

long-term issue, difficult or impossible to avoid, becomes strategic focus of firm, one concise sentence, starts with "how", changes over time, result of multiple causes

generic business-level strategy

goal-directed actions managers take to achieve competitive advantage in a single product market; viewed from perspective of consumers being targeted

key questions addressed with a business-level strategy

who (which customers to serve?), what (what customer needs to satisfy?), why (why do we want to satisfy them?), and how (how will we satisfy them?)

5 generic business-level strategies

broad cost leadership, broad differentiation, focused cost leadership, focused differentiation, best cost

2 competitive dimensions of business-level strategy

strategic position (cost or differentiation), competitive scope (narrow or broad)

broad cost leadership

offering the lowest prices in the market for that product or service; rely on economies of scale; example is Walmart, Payless Shoes

economies of scale

created when the unit cost of goods and services decreases as a firm is able to produce and sell more items

broad differentiation

offering something unique that differentiates their product from others; creates loyal customers; example is Nike, Disney, Starbucks

focused cost leadership

provide lowest cost to a narrow, niche target market; example is Redbox, Claire's

focused differentiation

provides a unique or differentiated product or service to a narrow, niche target market; example is sports cars, Mont Blanc pens, Whole Foods

best-cost

firm attempts a hybrid of lower cost and differentiated products that customers find desirable; can get "stuck in the middle"; example is IKEA, Target, Southwest

"stuck in the middle"

firms attempting best cost strategy that are unable to achieve either one effectively; example is Arby's, Sears