Strategic Management Final Oklahoma State

Recent trends that might lead managers of multinational corporations (MNCs) not to adopt a multi-domestic strategy for their operations would include all the following except

A. international customers' needs, interests, and tastes are becoming increasingly homogenized or similar.

B. consumers around the world are increasingly willing to trade off idiosyncratic preferences in product features for lower prices.

C. flexible manufacturing trends have allowed a decline in the minimum volume required to reach acceptable levels of production efficiency.

D. cultural globalization and technological standards diffusion across countries are resulting in increased similarities in lifestyles and preferences in an increasing number of countries around the world.

C. flexible manufacturing trends have allowed a decline in the minimum volume required to reach acceptable levels of production efficiency.

Competitiveness is usually enhanced by good implementation of diversification based on all the following reasons except:

A. Potential to share the inventory delivery system between the old and the new business.
B. Potential to reduce the cost of manufacturing in the new business more than other potential acquirers.
C. Potential to overcome uncertainties in the future cash flows of a mature product line with cash flows from a new product to protect value for shareholders.
D. Potential to share managerial competences in the implementation of a particular technological development across otherwise different businesses.
E. None of the other options in this set of answers.

C. Potential to overcome uncertainties in the future cash flows of a mature product line with cash flows from a new product to protect value for shareholders.

High pressure for local adaptation combined with high pressure for lower costs would suggest what type of international strategy?

A. international.
B. global.
C. multi-domestic.
D. transnational.

D. transnational.

Units coordinate their activities with headquarters and with one another, units adapt to special circumstances only they face, and the entire organization draws upon relevant global resources for enhanced efficiencies. These are all attributes of
which type of strategy?

A. a global strategy
B. a transnational strategy
C. an international strategy
D. a multi-domestic strategy

B. a transnational strategy

Excessive focus on reduced risk might occur if an executive has been with the company for a long time and his/her pay package has been dominated by:

A. salary
B. bonus
C. stock options
D. benefits

C. stock options

The bargaining power of suppliers is enhanced under the following market condition:

A. no threat of forward integration
B. low differentiation of the suppliers' products
C. greater availability of substitute products
D. dominance by a few suppliers

C. greater availability of substitute products

High product differentiation is generally accompanied by:

A. higher market share.
B. decreased emphasis on competition based on price.
C. higher profit margins and lower costs.
D. significant economies of scale.

B. decreased emphasis on competition based on price.

An analysis of the economic segment of the external environment does NOT include:

A. interest rates.
B. international trade.
C. the strength of the U.S. dollar.
D. the move toward a contingent work force.

D. the move toward a contingent work force.

If an industry has high exit barriers and high entrance barriers, returns to the industry should be:

A. low and unstable

B. low and stable

C. high and unstable

D. high and stable

B. low and stable

The three key types of firm factors that are central to the resource-based view of the firm are:

A. tangible resources, intangible resources, and organizational structure.
B. culture, tangible resources, intangible resources.
C. tangible resources, intangible resources, and organizational capabilities.
D. tangible resources, intangible resources, and top management.

C. tangible resources, intangible resources, and organizational capabilities.

Which of the following is a risk (or pitfall) of cost leadership?

A. cost cutting may lead to the loss of desirable features.
B. attempts to stay ahead of the competition may lead to unacceptable quality.
C. cost differences increase as the market matures.
D. producers are more able to withstand increases in suppliers' cost.

B. attempts to stay ahead of the competition may lead to unacceptable quality.

The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is a firm- level analytical model which explains differences in performance between the firms that compete in one industry.

A. True

B. False

B. False

Suppliers are powerful when:

a. satisfactory substitutes are available.
b. they sell a commodity product.
c. they offer a credible threat of forward integration.
d. they are in a highly fragmented industry.

c. they offer a credible threat of forward integration.

An organization is responsible to many different entities. In order to meet the demands of these groups, organizations must participate in stakeholder management. Stakeholder management means that:

a. interests of the stockholders are not the only interests that matter.
b. stockholders should encourage higher salaries for all employees.
c. stakeholders and managers inevitably work at cross-purposes.
d. maximizing return to stockholders is the only objective of such an organization.

a. interests of the stockholders are not the only interests that matter.

The bargaining power of suppliers is enhanced under the following market condition:

a. no threat of forward integration
b. low differentiation of the suppliers' products
c. greater availability of substitute products
d. dominance by a few suppliers

c. greater availability of substitute products

Strategic Management

the study of why some firms outperform others

Mission

statement explaining why a company exists

• provides context for all decisions within the organization

• describes and enduring reality

• is capable of infinite fulfillment (no time frame)

• useful for both internal and external audiences

Vision

crystallization of what leaders want firm to be

• guides development of strategy and organization

• describes an inspiring new reality

• is achievable within a specific time period

• primarily useful internally

Strategic Plan

how to beat present and potential competitors

• lists set of actions to provide products or services that create more value than their cost

• constantly changes

• for internal use

Stakeholders

individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance

Capital Market Shareholders

• shareholders

• major suppliers of capital (banks)

Product Market Shareholders

• primary customers

• suppliers

• host communities

• unions

Organizational Stakeholders

• employees

• managers

• nonmanagers

Corporate governance

the relationship among various participants in determining the direction and performance of corporations

Strategic Competitiveness

when a firm successfully formulates and implements a value-creating strategy

Sustainable Competitive Advantage

when competitors are unable to duplicate a company’s value-creating strategy

• valuable

• rare

• costly to imitate

• not substitutable

Strategic Management Process

the full set of commitments, decisions, and actions required
for a firm to achieve strategic competitiveness and earn
above-average returns

Risk

an investor’s uncertainty about the economic gains or
losses that will result from a particular investment

Average Returns

returns equal to those an investor expects to earn from
other investments with a similar amount of risk

Above-average Returns

returns in excess of what an investor expects to earn from
other investments with a similar amount of risk

Economic Value Model

strategy objective is to maximize shareholder wealth

Objectives other than wealth creation

Objectives that are used as surrogates for eventual wealth or the fulfillment of a mission

Stakeholder Surplus Model

defines beneficiary group and maximizes wealth for total group

Approaches for evaluating firm performance

Financial Ratio Analysis

• balance sheet

• income statement

Stakeholder perspective

• employees

• customers

• owners

External Environments

General Environment

Industry Environment

Competitor Environment

General Environment

focused on the future

• little ability to predict

• little ability to control

• can vary across industries

Industry Environment

focused on factors and conditions influencing a firm’s profitability within an industry

• economic

• demographic

• political/legal

• global

• sociocultural

• technological

Competitor Environment

focused on predicting the dynamics of competitor’s actions, responses and intentions

• threats of new entrants

• power of suppliers

• power of buyers

• product substitutes

• intensity of rivalry

Porter’s 5 Forces Model

• threats of new entrants

• power of suppliers

• power of buyers

• product substitutes

• intensity of rivalry

Increase in demand

• price of substitutes rises

• price of complements decrease

• income rises

• increase in desirable product attributes

• shift in consumer preferences towards good

Decrease in demand

• prices of substitutes decreases

• price of complements rises

• income decreases

• decrease in desirable product attributes

• shift in consumer preferences away from good

Threat of New Entrants

profits of established firms in the industry may be eroded by new competitors

Barriers to Entry

high barriers of entry in an industry reduces threat of new entrants

Economies of Scale

marginal improvements in efficiency that a firm experiences as it incrementally increases its size

Product Differentiation

• unique products

• customer loyalty

• products at competitive prices

Capital Requirements

• physical facilities

• inventories

• marketing activities

• availability of capital

Bargaining Power of Buyers

buyers threaten an industry

• force down prices

• bargain for higher quality of more services

• play competitors against each other

A buyer group is powerful when…

• it is concentrated or purchases large volumes relative to seller sales

• the products it purchases from the industry are standard or undifferentiated

• buyer faces few switching costs

• it earns low profits

• the buyers pose a credible threat of backward integration

Bargaining Power of Suppliers

suppliers can exert power by threatening to raise prices or reduce quality of purchased goods and services

A supplier group will be powerful when…

• The supplier group is dominated by a few
  companies and is more concentrated than
  the industry it sells to.
  • The supplier group is not obliged to contend
  with substitute products for sale to the industry
  • The industry is not an important customer of the supplier group
  • The supplier’s product is an important input to the buyer’s business
  • The supplier group’s products are differentiated or it has built up
  switching costs for the buyer
  • The supplier group poses a credible threat of forward integration

Threat of Substitute Products

• threat of substitute products increases when

  • buyers face few switching costs

  • substitutes product’s price is lower

  • substitute product’s quality and performance are equal to or greater than the existing product

• differentiated industry products that are valued by customers reduce this threat

Intensity of Rivalry

• price competition

• advertising battles

• product introductions

• increased customer service or warranties

Industry rivalry increases when…

• there are numerous or equally balanced competitors

• industry growth slows

• high fixed or storage costs

• lack of differentiation opportunities

• low switching costs

• high exit barriers

Assumptions in Industry Analysis

• no two firms are totally different

• no two firms are exactly the same

Strategic Groups

cluster of firms that share similar strategies

• internal competition between strategic group firms is greater than between firms outside that strategic group

• more heterogeneity in performance of firms within strategic groups

Business-Level Strategies

are intended to create differences between the firm’s position relative to those of its rivals

each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets

Forward Integration

the process by which companies acquire a segment further down the supply chain (towards consumers)

Backward Integration

the process by which companies acquire a segment further up the supply chain (towards raw materials)

Cost Leadership Strategy

an integrated set of actions taken to produce goods or
services with features that are acceptable to customers at
the lowest cost, relative to that of competitors with features
that are acceptable to customers.

• relatively standardized products

• features acceptable to many customers

• lowest competitive price

Differentiation Strategy

an integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them

Focus Strategies

an integrated set of actions taken to produce goods or
services that serve the needs of a particular competitive segment

External Environment

what firms might choose to do

• examine forces that affect the industry

Internal Environment

what firms can do

• examine unique resources, capabilities, and competencies

Resources

are a firm’s assets, including people and the value of its brand name

represent inputs into a firm’s production process

Financial Resources

• firm’s cash accounts

• firm’s capacity to raise equity

• firm’s borrowing capacity

Physical Resources

• modern plant and facilities

• favorable manufacturing locations

• state-of-the-art machinery and equipment

Technological Resources

• trade secrets

• innovative production processes

• patents, copyrights, trademarks

Organizational Resources

• effective strategic planning processes

• excellent evaluation and control systems

Human Resources

• experience and capabilities of employees

• trust

• managerial skills

• firm-specific practices and procedures

Capabilities

are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state

often based on developing, carrying, and exchanging information through human capital

Core Competencies

resources and capabilities that serve as a source of a firm’s competitive advantage

Value Chain

shows how a product moves from raw material stage to the final customer

Primary Resources

• receiving, storing and distributing inputs to the product

• transforming inputs into the final product form

• collecting, storing and distributing the product or service to buyers

• purchases of products and services by end users and the inducements used to get them to make purchases

• providing service to enhance the maintain value of the product

Support Resources

• typically supports the entire value chain and not individual activities

• recruiting, hiring, training, development and compensation of all types of personnel

• function of purchasing inputs used in the firm’s value chain

Outsourcing

purchase of a value-creating activity from an external supplier

Rationales for Outsourcing

• improves business focus

• provides access to world-class capabilities

• accelerate business re-engineering benefits

• sharing risks

• free resources for other purposes

Outsourcing Issues

• create value

• evaluating resources and capabilities

• environmental threats and ongoing tasks

• nonstrategic team of resources

• firm’s knowledge base

Corporate-Level Strategy

specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets

International Strategy

a strategy through which the firm sells its goods or services outside its domestic market

• yield new potential opportunities

• new market expansion extends product life cycle

• needed resources can be secured

• greater potential product demand

• competitive advantage through location

• increase market size

• return on investment increase

Location Economies

economies that arise from performing a value creation actiity in the optimal location for that activity, wherever in the world that might be

• lowers cost of value creation

• differentiated their product offering

Global Web

different stages of the value chain are dispersed to those locations around the globe where perceived value is maximized or where costs of value creation are minimized

Types of competitive pressures

pressures for cost reductions

pressures to be locally responsive (adapt product to meet local demands)

Global Strategy

• focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies

• strategic goal is to pursue a low-cost strategy on a global scale

• makes sense when there are strong pressures for cost reductions and when demands for local responsiveness are minimal

Multidomestic Strategy

focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets

Transnational Strategy

tries to simultaneously:

• achieve low costs through location economies, learning effects, and economies of scale

• differentiate the product offering across geographic markets to account for local differences

• foster a multidirectional flow of skills between subsidiaries in the firm’s global network of operations

• makes sense when pressures for local responsiveness are intense and cost pressures are intense

Basic Coordination Mechanisms

• mutual adjustment

• direct supervision

• standardization

Functional Structure

1 president, vice presidents, and so on down the line. Think pyramid scheme

Divisional Structure

multiple different presidents of different divisions of a company

Matrix Structure

1 president, but vice presidents have overlapping roles due to each VP having a responsibility

Agency Relationship

Shareholders and firm owners hire managers (agents) to create an agency relationship

Agency Relationship Issues

• principal and agent have different interests and goals

• shareholders lack direct control of large, publicly traded corporations

• agent makes decisions that result in the pursuit of goals that conflict with those of the principal

• difficult or expensive for the principal to verify that the agent has behaved appropriately

• agent falls prey to managerial opportunism

Corporate Governance

• a relationship among stakeholders used to determine and control the strategic direction and performance of organizations

• concerned with making strategic decisions more effectively

• used to establish order between a firm’s owners and its top-level managers whose interests may be in conflict

Ownership Concentration

• large block shareholders have a strong incentive to monitor management closely

• financial institutions are legally forbidden from directly holding board seats

• increasing influence of institutional owners (stock mutual funds and pension funds)

• shareholder activism

Board of Directors

group of elected individuals that acts in the owners’ interests to formally monitor and control the firm’s top-level executives

• direct the affairs of the organization

• punish and reward managers

• protect owners from managerial opportunism

Insiders

the firm’s CEO and other top-level managers

Related Outsiders

individuals uninvolved with day-to-day operations, but who have a relationship with the firm

Outsiders

individuals who are independent of the firm’s day-to-day operations and other relationships

Forms of compensation

salary, bonuses, long-term performance incentives, stock awards, stock options

Executive Compensation Issues

• unintended consequences of stock options

• firm performance not as important as firm size

• balance sheet not showing executive wealth

• options are not expensed at the time they are awarded