Strategic Management Flashcards

Flashcards on Strategic Management and Competitive Forces

Romantic View of Leadership

The belief that the leader is the key force determining an organization's success.

External Control View of Leadership

The belief that external forces, where the leader has limited influence, determine an organization's success.

Strategy

The ideas, decisions, and actions that enable a firm to succeed, directing it toward goals and objectives.

Intended Strategy

Strategy in which organizational decisions are determined only by analysis; what we planned.

Realized Strategy

Strategy in which organizational decisions are determined by both analysis and unforeseen environmental developments; unanticipated resource contraints, and/or changes in managerial preference; what we did.

Emergent Strategy

What we did but did not plan.

Stakeholders

Individuals who have a stake in the success of the oranization, including owners, employees, custmers, suppliers, and the community at large

Stakeholder Management

A firm's strategy for recognizing and responding to the interests of its salient stakeholders.

Shareholder Approach

Prioritizes maximizing the interests of shareholders; focuses on profit creation for investors.

Zero-Sum Game

The idea that stakeholders compete with each other; making one happy makes another less happy.

Symbiosis

The idea that stakeholders depend upon each other; making employees happy increases profits and investor satisfaction.

Triple Bottom Line

Assessment of a firm's financial, social, and environmental performance.

Vision

Organizational goals that evoke a powerful and compelling mental image; more general and long-term.

Mission

Set of organizational goals that include the purpose of the organization, its scope of operations, and the basis of its competitive advantage; more specific and short-term.

Strategic Objectives

Specific, measurable, appropriate, realistic, and timely goals.

Financial Ratio Analysis

A method for evaluating firm performance through historical comparisons, comparisons with industry, and comparisons with key competitors.

Industry

Composed of established competitors, substitutes, suppliers and buyers.

Economies of Scale

The larger the volume of products, the cheaper it is to produce each single product.

Bargaining Power of Buyers

The ability of buyers to reduce industry profitability by forcing prices down.

Bargaining Power of Suppliers

The ability of suppliers to influence industry profitability often stemming in high concentration of suppliers.

Threat of Substitute Products and Services

The risk that a similar product could replace the need for another product.

Rivalry Among Competitors

The intensity of reciprocal competitive attacks among established competitors that reduce profit margins.

Complements

Products or services that have an impact on the value of a firm’s products or services (e.g., cars and tires).

Strategic Group within Industries

Clusters of firms that share similar strategies.

Four Attributes of Strategic Management

1. Directs the organization toward overall goals and objectives

2. Includes multiple stakeholders in decision making

3. Needs to incorporate short-term and long-term perspectives

4. Recognize trade-offs between efficiency and effectiveness

Unrealized strategy

what we planned but did not do

The more uncertain and newer an industry is

the more emergent strategy becomes important

Strategy Analysis

Study of firm’s external and internal environments, and their fit with organiazation’s vision and goals

Strategy Formulation

Decisions made by firms regarding investments, commitments, and other aspects of operations that create and sustain competitive advantage

Strategy Implementation

Actions made by firms that carry out the formulated strategy, including strategic controls, organizational design, and leadership

Stakeholder Approach

A strategy that prioritizes stakeholders in a specific order to balance their interests and ensure long-term organizational success. Typically, this involves focusing on consumers first, then employees, and finally investors, to create a sustainable and ethical business model.

Problems of sustainability initiatives

1. No data to accurately calculate ROI

2. Many benefits are intangible

3. Payback period is in the long run

Does it pay off to be socially responsible?

1. YES! Socially responsible companies tend to outperform the other publicly traded companies

Definition of Strategic Objectives

A set of organizational goals that are used to operationalize the mission statement and that are specific and cover a well-defined time frame

How do you measure the performance of a company?

1. Profit

2. Growth

3. Financial Value

4. Stock Price

5. Dividends distributed

6. Stakeholder satisfaction

Estimating company value

The value of the firm is net present value of the returns (cash inflows) that the assets generate

If markets are efficient

the value of the firm should be equal to its stock price

Markets are often

inefficient

If net present value is lower than stock price

stocks are overvalued and you should sell

If npv is higher than stock price

stocks are undervalued, and you should buy

The key to a good npv analysis is

strategy

Historical comparisons

Company’s ratios over time

Comparisons with industry

Company’s ratios versus the ratios of the industry

Comparisons with key competitors

Company’s ratios versus the ratios of close competitors

Current ratio

current assets/current liabilities, tells you the risk for financial risk in the short term

debt/equity ratio

total debt/total equity

cash ratio

cash/current liabilities (only focuses on cash rather than assets)

capital intensity

total assets/sales, gives you a better appreciation of the company’s assets

profit margin (ros)

net income/sales,

return on assets (roa)

net income/total assets (BEST ONE)

return on equity (roe)

net income/total equity

price-earning ratio

price per share/earning per share, (WORST TO DETERMINE PERFORMANCE because of manipulation)