J401 Book Exam

The set of managerial decisions and actions that determines the long-run performance of a corporation

composition of strategic management

Internal environment

external environment

composed of general forces in the environmentExamples: sociocultural issues, political issues, technological issues, economic issuesExample: Gay marriage affects all business b/c they will have to provide benefits to the spouse

groups in environment that directly affect or are affected by the organization's operations (often called industry)Examples: Employees, special interest groups, suppliers, shareholders, customers, creditors

the purpose of reason for the corporation's existence  It may be narrow or broad in scope. example: narrow - railroad, broad - transportationNarrow or broad, neither one is necessarily better than the other... but it may be dangerous if too narrow

corporation's overall direction and the management of its businesses

emphasizes improving the competitive position of a corporation's products or unitsEQIC - efficiency, quality, innovation, customer response

maximizes resource productivity -  the approachtaken by a functional area, such as marketing or research and development, toachieve corporate and business unit objectives and strategies by maximizingresource productivity. Concerned withdeveloping and nurturing a distinctive competence to provide a company orbusiness unit with a competitiveadvantage.MMPF - Marketing, Management, Production, Finance

to be successful over time, an organization needs to be in tune with its external environment

how attractive is this particular industry to our firm?

something that
stimulates a change in strategy

o   
New CEO
o   
External
Intervention (Government, suppliers, consumers, etc.)
o   
Threat of a
change in ownership
o   
Performance gap
o   
Strategic
inflection point

·        
a broad guideline
for decision making that links the formulation of strategy with its
implementations

o   
Companies use
policies to make sure that employees throughout the firm make decisions and
take actions that support the corporation’s mission, objectives, and
strategies.

·        
strategy
implementation that involves day-to-day decisions in resource allocation.

o   
Middle and lower
managers typically implement strategy with review from top management 

the
willingness to reject unfamiliar as well as negative information

newcomers
to an existing industry. They typically bring new capacity, a desire to gain
market share, and substantial resources; therefore, they are threats to an
established corporation.

o   
obstruction that
makes it difficult for a company to enter an industry

§ 
Examples:
Economies of scale, product differentiation, capital requirements, switching
costs, distribution channels, government policy, etc.

cost
to a consumer to switch to a substitute product or service

o   
the amount of
direct competition in an industry

§ 
Factors include:  number of competitors, rate of industry
growth, product characteristics, amount of fixed costs, capacity, height of
exit barriers, and diversity of rivals

o    Bargaining power of buyers – buyers affect an industry
through their ability to force down prices, bargain for higher quality or more
service, and play competitors against one another.

suppliers
can affect an industry through their ability to raise prices or reduce the
quality of purchased goods and services.

those
products that appear to be different buy can satisfy the same need as another
product

companies
with a limited product line that focus on
improving the efficiency of their existing competition

companies with fairly broad product lines that
focus on product innovation and market
opportunities

companies
that operate in at least two different
product-market areas, one stable and one variable

companies
that lack a consistent
strategy-structure-culture relationship

describes
an industry undergoing an ever-increasing level of environmental uncertainty in
which competitive advantage is only temporary

·        
a collection of
competencies that cross divisional boundaries, is widespread within the
corporation, and is something that a corporation can do exceedingly well.

·        
when core
competencies are superior to those of the competition.

used
to determine a firm’s competitive advantage; proposes four questions to
evaluate a firm’s competencies:

VRIO
Framework

the
rate at which a firm’s underlying resources, capabilities, or core competencies
depreciate or become obsolete.

the
rate at which a firm’s underlying resources, capabilities, or core competencies
can be duplicated by others.

the
speed at which other firms can understand the relationship of resources and
capabilities supporting a successful firm’s strategy.

the
ability of competitors to gather the resources and capabilities necessary to
support a competitive challenge.

the
ability of competitors to use duplicated resources and capabilities to imitate
the other firm’s success.

has
no functional or product categories and is appropriate for a small,
entrepreneur-dominated company with one or two product lines that operates in a
reasonably small, easily identifiable market niche. Employees tend to be
generalists and jack-of-all trades.

appropriate
for medium – sized firm with several product lines in one industry. Employees
tend to be specialists in business functions important to the industry, such as
manufacturing, marketing, finance, and human resources.

appropriate
for large corporation with many product lines in several related industries.
Employees tend to be functional specialists organized according to
product/market distinctions.

the
degree to which members of a unit accept the norms, values, or other culture
content associated with the unit.

in
the extent to which units throughout an organization share a common culture.

·        
the ratio of
total debt to total assets

o   
Helps describe
the use of debt (versus equity) to finance the company’s programs from outside

in
the analyzing and ranking of possible investments in fixed assets such as land,
buildings, and equipment in terms of the additional outlays and additional
receipts that will result from each investment.

·        
the balance of
the three types of research of basic, product, and engineering or process.

o   
The mix should be
appropriate to the strategy being considered and to each product’s life cycle.

suggests
that unit production costs decline by some fixed percentage (commonly 20-30%)
each time the total accumulated volume of production (in units) doubles

·        
the manufacturing
activities of the common parts of various products are combined to gain
economies even though small numbers of each product are made

o   
Replace economies
of scale in flexible manufacturing

unit
costs are reduced by making large numbers of the same product

describes
the particular strengths, weaknesses, opportunities, and threats that are
strategic factors for a company.

a
company’s specific competitive role that is so well suited to the firm’s
internal and external environment that other corporations are not likely to
challenge or dislodge it.

a
low-cost competitive strategy that aims at the broad mass market and requires
“aggressive construction of efficient-scale facilities, vigorous pursuit of
cost reductions from experience, tight cost and overhead control, avoidance of
marginal customer accounts, and cost minimization in areas like R&D,
service, sales force, advertising, and so on.”

aimed
at the broad mass market and involves the creation of a product or service that
is perceived throughout its industry as unique.

a
lower cost competitive strategy that focuses on a particular buyer group or
geographic market and attempts to serve only the niche, to the exclusion of
others.

a
differentiation strategy that concentrates on a particular buyer group, product
line segment, or geographic market.

·        
the firm’s
overall orientation towards growth, stability, or retrenchment

expand
the company’s activities

makes
no change to the company’s current activities

reduce
the company’s level of activities

the
degree to which a firm operates vertically in multiple locations on an
industry’s value chain from extracting raw materials to manufacturing to
retailing.

assuming
a function previously provided by a distributor

assuming
a function previously provided by a supplier

the
degree to which a firm operates in multiple locations at the same point in the
industry’s value chain

diversifying
into an industry that is unrelated to its current one

growth
through expanding into a related industry

the
concept that two businesses will generate more profit together than they could
separately

emphasizes
the improvement of operational efficiency and is probably most appropriate when
a corporation’s problems are pervasive but not yet critical.

becoming
another company’s sole supplier or distributor in exchange for long-term
commitment from the company.

offers
the opportunity to “skim the cream” from the top of the demand curve with a
high price while the product is novel and competitors are few.

attempts
to hasten market development and offers the pioneer the opportunity to use the
experience curve to gain market share with a low price and then dominate the
industry.

a
company is acquired in a transaction financed largely by debt, which is usually
obtained from a third party such as an insurance company.

purchasing
from someone else a product or service that had been previously provided
internally.

imitating
the strategy of a leading competitor

if
a company is successful because it pioneered an extremely successful product,
it has a tendency to search for another super product that will ensure growth
and prosperity.

o    entering into a spirited battle with another firm for
an increase in market share

when faced with several interesting
opportunities, management might tend to leap at them all

a
corporation might have invested so much in a particular strategy that top
management is unwilling to accept the fact that the strategy is not successful.

·        
functional and
product forms are typically combined simultaneously at the same level of the
organization

·        
nonstructural; it
virtually eliminates in-house business functions; most activities are
outsourced

the
planned elimination of positions or jobs

involves
the domination of one organization by another. The domination is not forced but
is welcomed by members of the acquired firm, who may feel for many reasons that
their culture and managerial practices have not produced success. The acquired
firm surrenders its culture and adopts the culture of the acquiring company.

an organization-wide approach to help assure purposeful action
toward desired objectives by linking organizational objectives with individual
behavior.

operational
philosophy that stresses commitment to customer satisfaction and continuous
improvement

specify
what is to be accomplished by focusing on the end result of the behaviors
through the use of objectives and performance targets or milestones

a
new accounting method for allocating indirect and fixed costs to individual
products or product lines based on the value-added activities going into that
product.

·        
the result of
dividing net income before taxes by total assets

o   
Most commonly
used measure of corporate performance in terms of profits

involves
dividing net earnings by the number of common stock shares

·        
obtained by
dividing net income by total equity (the shareholder’s total investment in the
corporation)

o   
Used as a measure
of performance

after-tax
operating profit minus the total annual cost of capital

A
tendency to do nothing or to remain unchanged