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113 Cards in this Set

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Define Strategic Management
Formulating, Implementing and Evaluating cross functional decisions that enable an organization to achieve its objectives and add value to customers. Integrates all departments in a business to achieve organizational success.
Strategic planning
Solely focuses on strategy formulation. Planning tries to optimize for tomorrow, the trends of today. HOW a company will focus its scarce resources in order to achieve competitive advantage.
Purpose of strategic management
1) To exploit and create new and different opportunities for tomorrow
2) To align the resources of an organization with the needs of the market and do it better than your competitors.
3 Stages of strategic management development
1) Strategy Formulation
2) Strategy Implementation
3) Strategy Evaluation
What it Strategy Formulation
Is the focus on operational effectiveness and differentiation
- Developing mission and vision
- identifying an org's external opportunities and threats
- determining internal strengths and weaknesses
- establishing LT objectives
- generating alternative strategies
- choosing particular strategies to pursue
What is the point of strategy formulation
- Firms have scarce resources, strategy formulation commits firms to specific products, markets, technologies, etc, for long periods of time
Issues in Strategy Formulation
- Businesses to enter
- Businesses to abandon
- Allocation of scarce resources
- Expansion of diversification
- International markets
- Mergers or joint ventures
- Avoidance of hostile takeover
What is Strategy Implementation
refers to operational effectiveness.
- requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that strategies can be carried out. "Action Stage"
Strategy Implementation steps
- Developing a strategy-supportive culture
- Creating an effective organizational structure
- Redirecting marketing efforts
- Preparing budgets by participation
- Developing and utilizing information systems
Linking employee compensation to organizational performance
- Changing strategy as needed
-Communicate
What is strategy evaluation?
- The primary means of determining whether particular strategies are not working well
Strategy Evaluation Steps
- Review external and internal factors that are the bases for current strategies
- Measuring performance
- Taking corrective actions
Vision statement
Answers the question "What do we want to become?"
Mission statement
Enduring statements of purpose that distinguish one similar business from other similar firms
- identifies scope of firm's operations in product and market terms
- Answers "What is our business?"
- describe values and priorities of an organization
- makes strategists think of the nature and scope of present operations and to assess the attractiveness of future markets and activities
Adapting to change
- Orgs should continuously monitor internal and external events so that timely changes can be made
- Some are controllable, some are not. Both require response.
- The only constant is change
Competitive advantage
anything that a firm does especially well compared to rival firms. (e.g. less fixed assets, more cash)
Strategists
CEO or manager responsible for a division
- indivs. who are most responsible for the success or failures of an org.
- help an org gather, analyze, and organize information-- track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging and market opportunities, identify business threats, and develop creative action plans
External opportunities and threats
economic, social, cultural, demographic, environmental, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. (PEST)
Internal strengths and weaknesses
An org's controllable activities that are performed especially well or poorly. May be declared by elements of being rather than performance
- Typically located in functional areas of the firm
How to asses internal strengths and weaknesses
- Ratios
- Performance measures
- Industry averages
- Survey data
Long term objectives
specific results that an organization seeks to achieve (in over the course of a year) in pursuing its basic mission
What is the point of long term objectives
Essential for ensuring the firm's success
- provide direction
- aid in evaluation
- create synergy
- reveal priorities
- focus coordination
- provide basis for planning, organizing, motivating, controlling and learning.
Strategies for growth
- Geographic expansion
- Diversification
- Acquisition
- Product development
- Market Penetraation
- Retrenchment
- Divestiture
- Liquidation
- Joint venture
- Execution
Annual objectives
Short term milestones that organizations must achieve to reach LT objectives
- must be measurable, quantitative, challenging, realistic, consistent, and prioritized
- Needed for every LT objective
Policies
Means by which annual objectives will be achieved.
- Include guidelines, rules, and procedures established to support efforts to achieve stated objectives
Why some firms do no strategic planning
- Fear of failure
- Overconfidence (or lack of it)
- Prior bad experience
- Self interest (results determine employment)
- Fear of the unknown
- Honest difference of opinion (conflict is considered inappropriate)
- Suspicion: employee do not trust management
Benefits to strategic planning
- High performing firms do systematic planning to prepare for future fluctuations in their external and internal environments
- Offer enhanced awareness of external threats, an improved understanding of competitors' strategies, increased employee productivity, reduced resistance to change, clearer understanding of performance-reward relationships
- promotes interaction between all managers at all divisional and functional levels
- It gives a degree of discipline and formality to the management of business
Strategic Planning is...
- A people process more than a paper process
- A learning process
- Words supported by numbers
- Simple and non-routine
- Varying assignments, team membership, meeting formats, and planning calendars
- challenging assumptions underlying corporate strategy
Effective strategic planning
- Welcomes bad news
- Requires open-mindedness and a spirit of inquiry
- Is not a bureaucratic mechanism
- Is not ritualistic or stilted
- Is not too formal, predictable, or rigid
- Does not contain jargon or arcane language
- Is not a formal system of control (but can be an informal one)
Does not disregard qualitative information
- Is not controlled by technicians
- Stays focused
- Continually strengthens the "good ethics is good business" policy
- Increases accountability if done properly
Vision
A possible and desirable future state of the organization including specific goals, and mission is more associated with behavior and the present
Benefits of vision and mission statement
1) To ensure unanimity of purpose within an organization
2)To provide a basis, or standard for allocating organizational resources
3) To establish a general tone or organizational climate
4)To serve as a focal point for individuals to identify with the organization's purpose and direction, and to deter those who cannot from participating in the organization's activites
5) To facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organization.
6) To specify organizational purposes and then to translate these purposes into objectives in such a way that cost, time, and performance parameters can be assessed and controlled.
Why vision matters
- Aligns employees around the same goal and objectives
- Gives value to what people do-- explains why you are in business
- May help with decision making at all levels of the organization
- Who the organization wants to serve to one another's mutual benefit
- May change based on market changes
What vision does
- Talks about what the organization wants to accomplish; what it wants to be
- Speaks to who you want to serve
What does the mission statement reveal?
How each division of the company will contribute to accomplishing the vision
What is a mission statement?
- An enduring statement of purpose that distinguishes one organization or division from others
- A declaration of an organization or division's "reason for being"
Characteristics of Mission statements
- Broad in scope
- Less than 250 words
- Inspiring
- Why the company's products have value
- States social and environmental sensitivity
- Includes customers, shareholders, and employees
What do Vision and Mission contribute?
- clear purpose
- allocates resources effectively
- translates objectives into structures
- gives value to employees and customers
How do you effectively develop vision/mission
- broad participation (employees feel committed to strategy and organization)
- start from the vision and determine how each function serves to help achieve it
- Make sure the customer is in there somewhere
An effective mission statement:
- Anticipates customer needs
- Identifies customer needs
- provides product/service to satisfy needs of customers
- identifies the utility of a firm's products to its customers
Mission statement components:
1. Customers, 2. Products or services, 3. Markets, 4. Technology, 5. Concern for survival, growth, and profitability,6. philosophy, 7. self-concept, 8. Concern for public image, 9. Concern for employees
When trying to sell a product or service
Do not try to sell the product as it is, sell the BENEFITS (the emotional appeal)
summary of benefits for having a mission/vision
- Achieve clarity of purpose for customers/employees
- Basis for other strategic planning activities
- Provide direction
- Focal point of shareholders
- Resolve divergent views of managers
- Set shared expectations for managers
External Forces
1. Economic forces
2. Social, cultural, demographic, and natural environment forces
3. Political, government, and legal forces
4. Technological forces
5. Competitive forces
Purpose of an external audit
Develop a finite list of:
1. Opportunities that could benefit a firm
2. Threats that should be avoided OR could change your strategies
External Audit
- Gather competitive intelligence
- Assimilate information
- Evaluate

Resulting in a list of the most important key external factors
Key external factors should be:
- Important in achieving LT and annual objectives
- Measurable
- Applicable to all competing firms
- Hierarchal in the sense that some will pertain to the overall company and others will be more narrowly focused on functional or divisional areas
Factors beyond the control of a single firm
- Increased foreign competition
- Population shifts
- Aging society
- Fear of traveling
- Stock Market Volatility
Industrial Organization View
An approach to competitive advantage that advocates that external (industry) factors are more important than internal factors in a firm achieving competitive advantage
Industry properties
- Economies of scale
- Barriers to market entry
- Product differentiation
- The economy
- Level of competitiveness
Trends in US Social, Cultural, Demographic, and Natural Environmental forces
- Aging population
- Less White
- Widening gap between rich and poor
- More American households with people living alone
- Social Media
Political, Governmental, and Legal forces
-Protectionist policies (governments taking equity stakes in companies)
- Antitrust regulations (protects competition, prevents monopolies)
- Tax rates
- Lobbying activities (influence management)
- Patent laws (protect markets)
Technological Forces
The internet has altered lifestyles:
- Increased speed and distribution
- Created new products and services
- Erased the limitations of traditional geographic markets
- Changed the historical trade-off between production standardization and flexibility
Chief Information officer
manager, managing the firm's relationship with stakeholders
Chief technology officer
Technician, focusing on issues like data acquisition, data processing, decision-support systems, and hardware and software acquisition
CIO and CTO roles
They work together to ensure that information needed to formulate, implement, and evaluate strategies is available when needed.
- Develop, maintain, and update the information database
Significance of IT
Velocity- refers to the speed requirement for collecting, processing and using the data
Variety- signifies the increasing array of data types
Volume- large data sets
Key questions concerning competitors
- Their strengths
- Their weaknesses
- Their objectives and strategies
- Their responses to external variables
- Their vulnerability to our strategies
- Our vulnerability to strategic counterattack
Key questions concerning competitors (Relative to yours)
- Our product/service positioning
- Entry and exit of firms in the industry
- Key factors for our current position in the industry
- Sales/profit ranking of competitors over time
- Sales/profit ranking of competitors over time
- Nature of supplier and distributor relationships
- The threat of substitute products/services
Competitive forces-- 7 characteristics of most competitive firms
- Market share matters
- Understanding what business you are in-- are they the right ones?
- Broke or not, fix it make it better
- Innovate or evaporate
- Acquisition is essential to growth
- People make a difference
- No substitue for quality
Sources of competitive intelligence
Internet, employees, managers, suppliers, distributors, customers, creditors, consultants, trade journals, want ads, newspaper articles, government filings, competitors
Objectives of competitive Intelligence
- Provide general understanding of industry and competitors
- Identify areas where competitors are vulnerable and assess impact of actions on competitors
- Identify potential moves that a competitor might make
- There is an advantage to anticipation
- Competitive intelligence aids in decision making
Resource similarity
- Extent to which the type and amount of a firm's internal resources are comparable to a rival (e.g. quality of people)
- If no difference, then price war.
Porter's 5 forces
-Bargaining power of suppliers
- Bargaining power of consumers
- Potential development of substitute products
- Potential entry of new competitors
- Rivalry among competing firms
Conditions that cause high rivalry among competing firms
- Consumers can switch brands easily
- Barriers to leaving the market are high
- Barriers to entering the market are low
- Fixed costs are high among firms competing
- The product is perishable
- Increase in number of competitors
- Demand for products decline
Potential entry of new competitors
- Barriers to entry are important
- Quality, pricing, and marketing can overcome barriers
- Integration important
Potential development of substitute products
Pressure increases when
- Prices of substitutes decrease (e.g. private brands)
- Consumers' swtiching costs decrease
Bargaining power of suppliers is increased when there are
-Small number of suppliers
- Few substitutes-- patent protected
- Costs of switching raw materials is high
Backward integration
(purchasing suppliers)
is gaining control or ownership of suppliers
Bargaining power of consumers
- Customers being concentrated or buying in volume affects intensity of competition-- contract buying
- Consumer power is higher where products are standard or undifferentiated
Conditions where consumers gain bargaining power:
- If buyers can inexpensively switch
If buyers are particularly important
- If sellers are struggling in the face of falling consumer demand
- If buyers are informed about sellers' products, prices, and costs
- If buyers have discretion in whether and when they purchase the product
Sources of external information: Unpublished sources
- Customer surveys
- Market research
- Speeches at professional or shareholder meetings
- TV programs
- Interviews and conversations with stakeholders
- Analyze public communications
Forecasts
Educated assumptions about future trends and events
Qualitative technique- sales force feedback
Forecasting tools- Quantitative techniques
Most appropriate when historical data is available and there is a constant relationship
Assumptions
Estimates of future events based upon the best available information of the present- Scenario planning- where are interest rates going?
The External Factor Evaluation Matrix
measures how well an organization responds to external factors. Each opportunity and threat is listed in detail and weighted as being either not important or vital (0-0.1). The response is rated on a scale of 1-4 and the rating is multiplied by the weight
Industry Analysis: Competitive Profile Matrix
- Identifies a firm's major competitors and their strengths and weaknesses in relation to a sample firm's strategic positions
- Critical success factors include internal and external issues
Weights have the same meaning as the EFE, but the ratings represent how strong the success factors are for a certain company.
Objectives of an internal Audit
- Determine whether a company has the resources and people to execute the strategy
- Correct structure to operate efficiently for consumers and optimize cost base
- Correct supply chain? Opportunities to capture value and save costs?
- Can outsourcing be used to reduce costs of staff and functions not directly related to the consumer?
Other objective of Internal Audit
Identify strengths and weaknesses in:
- Management
- Marketing
- Finance and Acctg
- Prod and Ops
- R&D
MIS
- Rid yourself of incompetence, contaminates good people
Distinctive competencies
Firm's strengths that can't be easily matched or imitated by competitors [includes people-- your employees]
- Building competitive advantage involves taking advantage of distinctive competencies.
Internal Audit process gathers information from:
Management
Marketing
Finance/Accounting
R&D
MIS
Production/Operations
Financial Ratio Analysis
Exemplifies complexity of relationships among functional areas of the business. All areas affect one another. Also benchmarks you against competitive industry performance.
- financials as a base of identifying problems
Functions of Management
1. planning (formulation)
2. Organizing (implementation)
3. Motivating (implementation)
4. Staffing (implementation)
5. Controlling (evaluation)
Planning
The process by which one determines whether to attempt a task, works out the most effective way of researching desired objectives, and prepares to overcome unexpected difficulties with adequate results
Organizing
Purpose is to achieve coordinated effort by defining task and authority relationships
Motivating
Influencing people to accomplish specific objectives
Staffing
(challenging for intl companies)-- HR: includes activities such as recruiting, interviewing, testing, selecting, orienting, training, developing, caring for, evaluating, rewarding, promoting employees as well as managing union relations
Management- controlling
Function of management that includes all those activities undertaken to ensure actual operations conform to planned operations.
- Establishing performance standards
- Measuring individual and organizational performance
- Ensure actual operations conform to planned operations
- Taking corrective actions- "The rule of three"
Management Audit Checklist
helps determine specific strengths and weaknesses in the functional area
- does the firm use strategic management concepts?
- Are objectives and goals measurable? well communicated?
- Do managers at all levels plan effectively?
- Do managers delegate authority well?
- Is the org's structure appropriate?
- Are job descriptions clear? Do they describe how they add customer value?
Are job specifications clear?
Is employee morale high?
- Is employee absenteeism low?
- Is employee turnover low?
Are the reward mechanisms effective?
Are the organization's control mechanism effective?
Marketing
1. Customer analysis
2. Selling products/services
Product and services planning
4. Pricing
5. Distribution
6. Marketing research
7. Cost/Benefit Analysis
Marketing audit
1. Are markets segmented properly?
2. Is the organization positioned well among competitors?
3. Has the firm's market share been increasing?
4. Are the distribution channels reliable & cost effective?
5. Is the sales force effective?
6. How do customers view our offering vs competition?
7. Does the firm conduct market research?
8. Are product quality and customer service good?
9. Are the firm's products and services priced appropriately?
10. Does the firm have effective promotion, advertising, and publicity strategies?
11. Are the mkt, planning and budgeting effective?
12. Do the firm's mkt managers have adequate experience and training?
13. Is the firm's internet presence excellent as compared to rivals?
Functions of Finance/Accounting
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
Liquidity Ratio
Basic financial ratio
- Shows firm's ability to meet its short term obligations
Ratios: Current Ratio, Quick (or acid test) ratio
Leverage ratios
Measures the extent to which a firm has been financed by debt
- debt-to-total assets
- debt-to-equity
- LT debt-to-equity
- times-interest-earned
Activity Ratios
Measure how effectively a firm is using its resources
Ratios:
- Inventory turnover, fixed assets turnover, total assets turnover, accounts receivable turnover, avarage collection period
Profitability Ratios
Effectiveness shown by return on sales and investment
Ratios: Gross profit margin, Operating profit margin, Net profit margin, Return on total assets (ROA), Return on stockholders' equity (ROE), Earnings per share, Price-earnings ratio
Growth Ratios
Measure firm's ability to maintain economic position in the growth of economy and industries
Ratios: Sales, net income, earnings per share, dividends per share
Production/Operations
Consists of all activities that transform inputs into goods and services
- Process, Capacity, Inventory, Workforce, Quality
Production/Operations audit
- Are suppliers of materials, parts, etc. reliable and reasonable?
- Are facilities, equipt., machinery, and offices in good consition?
- Are inventory control policies and procedures effective?
- Are quality-control policies and procedures effective?
- Are facilities, resources, and markets strategically located?
- Does the firm have technological competencies?
R&D Functions
- Development of new products BEFORE competitors
- Improving product quality
- Improving manufacturing processes to reduce costs
- Functions can be done internally or externally
Determining R&D Budgets
- financing as many projects as possible
- Use percent of sales method
- Budgeting relative to competitors
- How many successful new products are needed?
Research and Development Audit
- Are the R&D facilities adequate?
- If R&D is outsourced, is it cost-effective?
- Are the R&D personnel well-qualified?
- Are R&D sources allocated effectively?
- Are MIS and computer systems adequate?
- Is communication between R&D and other organizational units effective?
- Are present products technologically competitive?
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
Management Information Systems Audit
- Do all managers use the information systems to make decisions?
- Is there a CIO or Director of Information systems position in the firm?
- Are data updated regularly?
- Do managers from all functional areas contribute input to the information system?
- Are there effective passwords for entry into the firm's information systems?
- Are strategists of the firm familiar with the information systems of rival firms?
- Is the information system user friendly?
- Do all users understand the competitive advantages that information can provide?
- Are computer training workshops provided for users?
- Is the firm's system being improved?
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
Value Chain
Total revenues minus total costs of all activities undertaken to develop and market a product or service yields value.
Value chain activities
Obtaining raw materials, designing products, building manufacturing facilities, developing cooperative agreements, and providing customer service
Management Information Systems Audit
- Do all managers use the information systems to make decisions?
- Is there a CIO or Director of Information systems position in the firm?
- Are data updated regularly?
- Do managers from all functional areas contribute input to the information system?
- Are there effective passwords for entry into the firm's information systems?
- Are strategists of the firm familiar with the information systems of rival firms?
- Is the information system user friendly?
- Do all users understand the competitive advantages that information can provide?
- Are computer training workshops provided for users?
- Is the firm's system being improved?
value Chain Analysis
- The process whereby a firm determines the costs associated with:
-- purchasing raw materials
-- manufacturing products
-- marketing products
And compares them to the value chain of rival firms
Value Chain
Total revenues minus total costs of all activities undertaken to develop and market a product or service yields value.
Value chain activities
Obtaining raw materials, designing products, building manufacturing facilities, developing cooperative agreements, and providing customer service
value Chain Analysis
- The process whereby a firm determines the costs associated with:
-- purchasing raw materials
-- manufacturing products
-- marketing products
And compares them to the value chain of rival firms
Value Chain Analysis
- Core competencies
- Distinctive competencies
- Benchmarking
Transforming value chain activities into sustained competitive advantage
- Value chain activities are identified and assessed
- Core competencies arise in some activities
- Some core competencies evolve into distinctive competencies
- Some distinctive competencies yield sustained competitive advantages
Internal Factor Evaluation (IFE) Matrix
1. list key internal factors (strengths and weaknesses)
2. Assign weight ranging from 0 to 1.0 (importance). All weights should add up to 1
3. assign a 1 to 4 rating to each factor (major or minor weakness, major or minor strength)
4. Multiply the weight times the rating
5. Su the weighted scores