FinalExamStudyGuide

ThestrategicmanagementprocessStrategicAnalysisCh1StrategicManagement:AnOverviewStrategicManagement(P5)ProcessesofStrategicManagementSocialResponsibility(P15)StrategicDirection(P19)SustainableDevelopmentCorporateGovernanceWhatisStrategy“Aunified,comprehensive,andintegratedplandesignedtoensurethatthebasicobjectivesoftheenterpriseareachieved.”

(Glueck,1980:9)“Thepatternorplanthatintegratesanorganization’smajorgoals,policies,andactionsequencesintoacohesivewhole.”(Quinn,1980)“Agoodstrategy…neutralizesthreatsandexploitsopportunitieswhilecapitalizingonstrengthsandavoidingorfixingweaknesses.”

(Barney,1997:17)

“Apatternofresourceallocationthatenablesfirmstomaintainorimprovetheirperformance.0Anintegratedandcoordinatedsetofcommitments&actionsdesignedtoexploitcorecompetenciesandgainacompetitiveadvantage.AdaptedfromExhibit2.1InputstoForecastingStrategicManagementStrategicManagementconsistsoftheanalysis,decisionsandactionsanorganizationundertakesinordertocreateandsustaincompetitiveadvantages.(P5)processesofstrategicmanagementAnalysisStrategicgoals(vision,mission,strategicobjectives)InternalandexternalenvironmentofthefirmStrategicdecisionsWhatindustriesshouldwecompeteinHowshouldwecompeteinthoseindustriesActionsAllocatenecessaryresourcesDesigntheorganizationtobringintendedstrategiestorealitySocialResponsibilitySocialresponsibility:theexpectationthatbusinessesorindividualswillstrivetoimprovetheoverallwelfareofsociety.EconomicresponsibilityLegalresponsibilityMoralresponsibilityStrategicDirectionStrategicdirectionisacourseofactionthatleadstotheachievementofthegoalsofanorganization'sstrategy.Strategicdirectionisaboutthelongtermgoalsandobjectivesoftheorganization.Strategicdirectiondefinesthepurposesforwhichanorganizationexistsandoperates.SustainableDevelopmentSustainableDevelopmentstandsformeetingtheneedsofpresentgenerationswithoutjeopardizingtheabilityoffuturesgenerationstomeettheirownneeds.SustainableDevelopmentisbusinessgrowththatdoesnotdestroythenaturalenvironmentordamagesocietyinanyway.CorporateGovernanceCorporategovernance:therelationshipamongvariousparticipantsindeterminingthedirectionandperformanceofcorporationsShareholdersManagement(ledbytheCEO)BoardofDirectorsStrategicAnalysisCh2AnalyzingtheExternalEnvironmentGeneralEnvironmentalAnalysisSWOTAnalysis(P37)Porter'sFive-forcesModel(P46)EconomiesofScaleStrategicGroupMap(P56)TheGeneralEnvironmentGeneralenvironmentaltrendsandeventsLittleabilitytopredictthemEvenlessabilitytocontrolthemCanvaryacrossindustriesGeneralEnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobalSWOTAnalysisManagersneedtoanalyzeThegeneralenvironmentThefirm’sindustryandcompetitiveenvironmentSWOTanalysisStrengthsWeaknessesOpportunitiesThreatsBasictechniqueforanalyzingfirmandindustryconditionsPorter’sFiveForcesModelofIndustryCompetitionThreatofnewentrantsBargainingpowerofbuyersBargainingpowerofsuppliersThreatofSubstituteproductsandservicesAdaptedfromExhibit2.5Porter’sFiveForcesModelofIndustryCompetitionTheThreatofNewEntrantsProfitsofestablishedfirmsinthe industrymaybeerodedbynew competitorsHighentrybarriersleadtolow threatofnewentriesEconomiesofscaleHighlevelsofproductdifferentiationLargecapitalrequirementsHighswitchingcostsLimitedaccesstodistributionchannelsCostdisadvantagesindependentofscaleTheBargainingPowerofBuyersBuyersthreatenanindustryForcedownpricesBargainforhigherqualityormoreservicesPlaycompetitorsagainsteachotherTheBargainingPowerofBuyersAbuyergroupispowerfulwhenItisconcentratedorpurchases largevolumesrelativetosellersalesTheproductsitpurchasesfromthe industryarestandardorundifferentiatedThebuyerfacesfewswitchingcostsItearnslowprofitsThebuyersposeacrediblethreatofbackwardintegrationTheindustry’sproductisunimportanttothequalityofthebuyer’sproductsorservicesTheBargainingPowerofSuppliersSupplierscanexertpowerby threateningtoraisepricesor reducethequalityofpurchased goodsandservicesTheBargainingPowerofSuppliersAsuppliergroupwillbepowerful whenThesuppliergroupisdominated byafewcompaniesandismore concentratedthantheindustry itsellstoThesuppliergroupisnotobligedtocontendwithsubstituteproductsforsaletotheindustryTheindustryisnotanimportantcustomerofthesuppliergroupTheBargainingPowerofSuppliersAsuppliergroupwillbepowerful whenThesupplier’sproductisan importantinputtothebuyer’s businessThesuppliergroup’sproductsaredifferentiatedorithasbuiltupswitchingcostsforthebuyerThesuppliergroupposesacrediblethreatofforwardintegrationTheThreatofSubstituteProductsandServicesSubstituteslimitthepotential returnsofanindustryCeilingonthepricesthatfirms inthatindustrycanprofitablychargePrice/performanceratioTheIntensityofRivalryamongCompetitorsinanIndustryPricecompetitionAdvertisingbattlesProductintroductionsIncreasedcustomerserviceorwarrantiesTheIntensityofRivalryamongCompetitorsinanIndustryInteractingfactorsleadto intenserivalryNumerousorequallybalanced competitorsSlowindustrygrowthHighfixedorstoragecostsLackofdifferentiationorswitchingcostsCapacityaugmentedinlargeincrementsHighexitbarriersEconomiesofScaleEconomiesofscaleUnitcostreductionsassociatedwithalargescaleofoutputLargerproductionrunsLargerfacilitiesAllocatingfixedcostsDiseconomiesofscaleUnitcostincreasesassociatedwithalargescaleofoutputIncreasedbureaucracyassociatedwithlarge-scaleenterprisesResultingmanagerialinefficiencies24EconomiesandDiseconomiesofScale25StrategicGroupMapStrategicgroupsClusteroffirmsthatsharesimilarstrategies.ValueofstrategicgroupingHelpanorganizationidentifybarriersofonegroupHelpanorganizationverifyitsrealcompetitorsHelpanorganizationchooseitsfuturedirectionHelpusunderstandthetrendofanindustryDimensionsBreadthofproduct;Geographicscope;Price/quality;TypeofdistributionTheWorldAutomobileIndustry:StrategicGroupsAdaptedfromExhibit2.8TheWorldAutomobileIndustry:StrategicGroupsCh3AnalyzingtheInternalEnvironmentValueChainAnalysisOrganizationalCapabilitiesFourCharactersofResourcesorCapabilitiestoFormCoreCompetency(P74)StrategicAnalysisValue-ChainSequentialprocessofvalue-creatingactivitiesOrganizationalCapabilitiesCompetencies

orskillsthatafirmemploystotransforminputstooutputs,andcapacitytocombinetangibleandintangibleresourcestoattaindesiredendOutstandingcustomerserviceExcellentproductdevelopmentcapabilitiesInnovativenessofproductsandservicesAbilitytohire,motivate,andretainhumancapitalHowResourcesandCapabilities

LeadtoAdvantagesAdaptedfromExhibit3.5Marks&Spencer:HowResourcesandCapabilitiesLeadtoAdvantagesSource:AdaptedwithpermissionofHarvardBusinessReview:Exhibitfrom“CompetingonResources:Strategyinthe1990’s”byD.J.CollisandC.Montgomery,73,no.4(1995).FourAttributesofResourcesandCapabilities(CompetitiveAdvantage)Unique

possessedbyfew,ifany,currentand potentialcompetitorsCostlyto whenotherfirmseithercan’tobtainthemImitate ormustobtainatamuchhighercost*an*Valuable allowfirmtoneutralizethreatsorexploit opportunitiesinitsexternalenvironmentIrreplaceable

Can’tbereplacedbyotherkindsofresourcesorcapabilitiesResourcesandcapabilities

thatmeetthesefourcriteriabecomeasourceof:Unique

CostlytoImitateValuable *an*CoreCoreCompetenciesResourcesandCapabilitiesIrreplaceable

CriteriaforSustainableCompetitiveAdvantageandStrategicImplicationsValuable Rare Inimitable Difficult Implications tosubstitute forCompetitivenessNo No No No CompetitivedisadvantageYes No No No CompetitiveparityYes Yes No Yes Temporarycompetitive advantageYes Yes Yes Yes Sustainablecompetitive advantageIsaresourceorcapability…Exhibit3.7CriteriaforSustainableCompetitiveAdvantageandStrategicImplicationsSource;AdaptedfromJ.Barney,“GainingandSustainingCompetitiveAdvantage”,Addison-Wesley,1997.Copyright?2009TheMcGraw-HillRyersonLimited.StrategicFormulationCh5Business-LevelStrategyOverallCostLeadershipStrategy(P117)Differentiation(P124)Focus(P129)IndustryLifeCycle(P137)OverallCostLeadershipIntegratedtacticsAggressiveconstructionofefficient-scalefacilitiesVigorouspursuitofcostreductionsfromexperienceTightcostandoverheadcontrolAvoidanceofmarginalcustomeraccountsCostminimizationinallactivitiesinthefirm’svaluechainMarginal

customersrepresentaparticularlyhighriskofdefaultorseriousslowpay.DifferentiationDifferentiation

cantakemanyformsPrestigeorbrandimageTechnologyInnovationFeaturesCustomerserviceDealernetworkFocusFocusisbasedonthechoiceofanarrowcompetitivescopewithinanindustryFirmselectsasegmentorgroupofsegments(niche)andtailorsitsstrategytoservethemFirmachievescompetitiveadvantagesbydedicatingitselftothesesegmentsexclusivelyTwovariantsCostfocusDifferentiationfocusIndustryLife-CycleLifecycleofanindustryreferstothestagesofIntroductionGrowthMaturityDecline portrayshowsalesvolumeforaproductoranentireindustrychangesoveritslifetime.helpstounderstandthedynamicnatureofstrategy.StrategicFormulationCh6Corporate-LevelStrategyDiversificationRelatedDiversification(P150)PotentiallimitationswithM&A(P165)OrganizationalFitVerticalintegrationHorizontalIntegrationDiversificationDiversificationstrategydescribesthescopeofthefirmintermsoftheindustriesandmarketsinwhichitcompetes.RelatedDiversificationUnrelatedDiversificationBusiness2Business1RelatedDiversificationRelatedbusinessesBusinessesarerelatediftheyshareacommonmarket,technology,rawmaterial,oranyoneofotherprimaryactivities.ProductionfacilitiesDistributionchannelsSpecializedskillsManufacturingfacilitiesTechnologydevelopmentUnrelatedDiversificationUnrelatedbusinessesValuecreationderivesfromcorporateofficeLeveragingsupportactivitiesBusiness2Business1ProcurementInformationsystemsHumanresourcemgmtFirminfrastructureHowtoachievediversificationMergersandacquisitionsStrategicalliances&JointventuresInternaldevelopmentPotentiallimitationswithM&ATheexpensivepremiumsfrequentlypaidbyacquiringfirmsPerformancedifficultiesDifficultiesrelatetointegrationManager’segosCulturalissuesOrganizationalfitWhentwoorganizationsorbusinessunitsaremergedoracquisitionhappened,andtheorganizationalmanagementprocesses,cultures,system,andstructuresarematching(similar),thisisorganizationalfit.VerticalIntegration:BenefitsandRisksAsecuresourceofrawmaterialsordistributionchannels.Protectionofandcontrolovervaluableassets.AccesstonewbusinessopportunitiesSimplifiedprocurementandadministrativeprocedures.BenefitsExhibit6.3BenefitsandRisksofVerticalIntegrationRisksCostsandexpensesassociatedwithincreasedoverheadandcapitalexpendituresLossofflexibilityresultingfromlargeinvestments.Problemsassociatedwithunbalancedcapacitiesalongthevaluechain.Additionaladministrativecostsassociatedwithmanagingamorecomplexsetofactivities.VerticalIntegrationInmakingdecisionsassociatedwithverticalintegration,fourissuesshouldbeconsidered:ArewesatisfiedwiththequalityofthevaluethatourpresentsuppliersanddistributorsareprovidingArethereactivitiesinourindustryvaluechainpresentlybeingoutsourcedorperformedindependentlybyothersthatareaviablesourceoffutureprofitsIsthereahighlevelofstabilityinthedemandfortheorganization’sproductsHowhighistheproportionofadditionalproductioncapacityactuallyabsorbedbyexistingproductsorbytheprospectsofnewandsimilarproductsHorizontalintegrationHorizontalintegrationistheprocessofacquiringormergingwithindustrycompetitorstoachievethecompetitiveadvantagesthatarisefromalargesizeandscopeofoperations.StrategicImplementationCh9CreatingEffectiveOrganizationalDesignsLargeCorporations’DominantGrowthPatternsFunctionalStrategyCharacters(P241)DivisionalStructureDominantGrowthPatternsofLargeCorporationsInternationalExpansionRelateddiversificationVerticalintegrationGrowthinrevenuesandemployeesInternationalexpansionRelateddiversificationIncreaserelatednessofproductsandmarketsIncreaserelatednessofproductsandmarketsInternationalexpansionDiversificationinunrelatedareasStrategiesleadingtonewstructureDominantgrowthpathforU.S.firmsDiversificationintorelatedproductsandmarketsAdaptedfromExhibit10.1DominantGrowthPatternsofLargeCorporationsSource:AdaptedfromJ.R.GalbraithandR.K.Kazanjian,StrategyImplementation:TheRoleofStructureandProcess,2nded.(St.Paul,MN:WestPublishingCompany,1986),p.139.Copyright?2009byMcGraw-HillRyersonLimited9-5DifferentlevelsofstrategyLevelsofmanagementLevelsofstrategyCorporateCorporatelevelSBUBusinesslevelFunctionalFunctionallevelthewell-developedfunctionalstrategiesshouldhave:thecoordinationandintegrationofthefunctionalareasDecisionsmadewithinonefunctionwillbeconsistentwiththosemadeinothers.Decisionsmadewithinfunctionswillbeconsistentwiththestrategiesofthebusiness.FunctionalstrategyDefinition:Functionalstrategyistheapproachafunctionalareatakestoachievecorporateandbusinessunitobjectivesandstrategiesbymaximizingresourceproductivity.DivisionalStructureLower-levelmanagers,specialists,andoperatingpersonnelAdaptedfromExhibit10.3DivisionalOrganizationalStructureCopyright?2009byMcGraw-HillRyersonLimited9-9StrategicImplementationCh10StrategicControlInformationalControlControlSystemCharacters(P272)ExternalGovernanceControlMechanismsInformationalControlDealswithinternalenvironmentandexternalstrategiccontextKeyquestion“Dotheorganization’sgoalsandstrategiesstill‘fit’withinthecontextofthecurrentstrategicenvironment”TwokeyissuesScanandmonitorexternalenvironment(generalandindustry)ContinuouslymonitortheinternalenvironmentCopyright?2009McGraw-HillRyersonLimited.10-7InformationalControlInformationalcontrolrequiresfourcharacteristicstobeeffective:1.

Focusonconstantlychanginginformationthattopmanagersidentifyashavingpotentialstrategicimportance.2.Theinformationisimportantenoughtodemandfrequentandregularattentionfromoperatingmanagers.3.Thedataandinformationgeneratedbythecontrolsystemarebestinterpretedanddiscussedinface-to-facemeetingsamongsuperiorsandsubordinates.4.Thecontrolsystemisakeycatalystforanongoingdebateaboutunderlyingdata,assumptions,andactionplans.Copyright?2009McGraw-HillRyersonLimited.10-8ControlSystemCharactersa) Informationgeneratedbythecontrolsystemshouldbeanimportantandrecurringitemtobeaddressedbythehighestlevelsofmanagement.b) Thecontrolprocessshouldalsobegivenfrequentandregularattentionfromoperatingmanagersatalllevelsoftheorganization.c) Datafromthesystemshouldbeinterpretedanddiscussedinface-to-facemeetingamongsuperiorsandsubordinates.d) Thesuccessofthecontrolprocessreliesonthecontinualchallengeanddebateofunderlyingdata,assumptions,andstrategies.ExternalGovernance

ControlMechanismsMarketforcorporatecontrolAuditorsBanksandanalystsRegulatorybodies(Sarbanes-OxleyActin2002)MediaandpublicactivistsCopyright?2009McGraw-HillRyersonLimited.10-27StrategicImplementationCh11StrategicLeadershipLeadershipOrganizationalEthicsFourCriticalProcessesofLearningOrganizationsLeadershipLeadership

isthe:

processoftransformingorganizationsfromwhattheyaretowhattheleaderwouldhavethembecomeLeadershipshouldbeProactiveGoal-orientedFocusedonthecreationandimplementationofacreativevisionCopyright?2009McGraw-HillRyersonLimited.11-61Leadership:Three

InterdependentActivitiesSuccessfulleadersmustrecognizethreeinterdependentactivities 1Determiningadire