BUS 109 - Strategic Management & Business Policy Handbook


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(Spring 2010) A prepared 84-page handbook for my Strategic Management and Business Policy course; it includes the fundamentals, theories, models, and insights gathered together into this book.

The requirement for this assignment was to put together a 3-page or 50 most important concepts learned throughout the course.

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BUS 109 - Strategic Management & Business Policy Handbook

  1. 1. -8147649237“Business keeps moving faster – but you better make time for strategy.” – Michael Porter BUS 109 Pauline Zhou Professor: Dr. Sean D. Jasso Discussion: Section # 24 Name: Pauline Zhou SID: 860830077 28 May 2010 Spring 2010Achieving SustainabilityStrategic Management & Business Policy Leadership HandbookIntroductionTo the reader:This management handbook was made possible by Professor Dr. Sean D. Jasso and hissupporting teaching assistant staff; it holds together the fundamentals, theories, models, andinsights that were gathered throughout the Strategic Management course. During these past tenweeks, I’ve learned a significant amount that required training, hard-work, patience and a lot ofcritical analysis thinking. Although this journey was a challenge, it was a worthwhile one. Withthis new asset and knowledge, I hope to use it to its fulfilled purpose by carrying out andapplying these skills into my everyday activities. If I am able to do this, it will help me becomeone more effective leader’ that this society needs.Sincerely,Pauline Zhou Code of Ethics1. Is it legal?2. Is it right?3. Does it fit our policies?4. Does it fit our culture?5. Will it look good in the media headlines?6. Will it negatively impact stakeholders?7. Will it negatively affect your reputation?8. What ethic is being tested?9. Can you live with it?10. Can you sleep at night?11. What will you tell your children?Table of ContentsChapter 1: Basic Concepts of Strategic Management1.1 The Study of Strategic Management……………………… ……………………………………………………………………………………5 TOC o "1-3" h z u 1.2 Globalization and Environmental Sustainability: Challenges to Strategic Management PAGEREF _Toc262808805 h 61.3 Theories of Organizational Adaptation PAGEREF _Toc262808806 h 71.4 Creating a Learning Organization PAGEREF _Toc262808807 h 71.5 Basic Model of Strategic Model PAGEREF _Toc262808808 h 81.6 Initiation of Strategy: Triggering Events PAGEREF _Toc262808809 h 101.7 Strategic Decision Making PAGEREF _Toc262808810 h 101.8 The Strategic Audit: Aid to Strategic Decision-Making PAGEREF _Toc262808811 h 11Chapter 2: Corporate Governance 2.1 Role of the Board of Directors PAGEREF _Toc262808812 h 122.2 The Role of Top Management PAGEREF _Toc262808813 h 15Chapter 3: Social Responsibility and Ethics in Strategic Management3.1 Social Responsibilities of Strategic Decision Makers PAGEREF _Toc262808814 h 163.2 Ethical Decision Making PAGEREF _Toc262808815 h 18Chapter 4: Environmental Scanning and Industry Analysis 4.1 Environmental Scanning PAGEREF _Toc262808816 h 194.2 Industry Analysis: Analyzing the Task Environment PAGEREF _Toc262808817 h 204.3 Competitive Intelligence PAGEREF _Toc262808818 h 244.4 Forecasting PAGEREF _Toc262808819 h 254.5 The Strategic Audit: A Checklist for Environmental Scanning PAGEREF _Toc262808820 h 264.6 Synthesis of External Factors – EFAS PAGEREF _Toc262808821 h 26Chapter 5 : Internal Scanning: Organizational Analysis5.1 A Resource-Based Approach to Organizational Analysis PAGEREF _Toc262808822 h 265.2 Business Models PAGEREF _Toc262808823 h 275.3 Value-Chain Analysis PAGEREF _Toc262808824 h 285.4 Scanning Functional Resources and Capabilities PAGEREF _Toc262808825 h 295.5 The Strategic Audit: A Checklist for Organizational Analysis PAGEREF _Toc262808826 h 345.6 Synthesis of Internal Factors PAGEREF _Toc262808827 h 34Chapter 6: Strategy Formulation: Situation Analysis and Business Strategy6.1 Situational Analysis: SWOT Analysis PAGEREF _Toc262808828 h 346.2 Review of Mission and Objectives PAGEREF _Toc262808829 h 356.3 Generating Alternatives Strategies by Using a TOWS Matrix PAGEREF _Toc262808830 h 356.4 Business Strategies PAGEREF _Toc262808831 h 36Chapter 7: Strategy Formulation: Corporate Strategy7.1 Corporate Strategy PAGEREF _Toc262808832 h 417.2 Directional Strategy PAGEREF _Toc262808833 h 417.3 Portfolio Analysis PAGEREF _Toc262808834 h 457.4 Corporate Parenting PAGEREF _Toc262808835 h 47Chapter 8: Strategy Formulation: Functional Strategy and Strategic Choice8.1 Functional Strategy PAGEREF _Toc262808836 h 488.2 The Sourcing Decision: Location of Functions PAGEREF _Toc262808837 h 508.3 Strategies to Avoid PAGEREF _Toc262808838 h 518.4 Strategic Choice: Selecting the Best Strategy PAGEREF _Toc262808839 h 518.5 Developing Policies PAGEREF _Toc262808840 h 53Chapter 9: Strategy Implementation: Organizing for Action9.1 Strategy implementation PAGEREF _Toc262808841 h 539.2 Who Implements Strategy? PAGEREF _Toc262808842 h 539.3 What Must Be Done? PAGEREF _Toc262808843 h 539.4 How Is Strategy to Be Implemented? Organizing for Action PAGEREF _Toc262808844 h 559.5 International Issues in Strategy Implementation PAGEREF _Toc262808845 h 58Chapter 10: Strategy Implementation: Organizing For Action10.1 Staffing PAGEREF _Toc262808846 h 6010.2 Leading PAGEREF _Toc262808847 h 62Chapter 11: Evaluation & Control11.1 Evaluation and Control in Strategic Management PAGEREF _Toc262808848 h 6511.2 Measuring Performance PAGEREF _Toc262808849 h 6511.3 Strategic Information Systems PAGEREF _Toc262808850 h 7011.4 Problems in Measuring Performance PAGEREF _Toc262808851 h 7011.5 Guidelines to Proper Control PAGEREF _Toc262808852 h 7111.6 Strategic Incentive Management PAGEREF _Toc262808853 h 71Chapter 12: Suggestion for Case Analysis12.1 The Case Method PAGEREF _Toc262808854 h 7212. 2 Researching the Case Situation PAGEREF _Toc262808855 h 7212.3 Financial Analysis: A Place to Begin PAGEREF _Toc262808856 h 7212.4 Format for Case Analysis: The Strategic Audit PAGEREF _Toc262808857 h 76 <br />52533551438835<br />Chapter 1: Basic Concepts of Strategic Management1.1 The Study of Strategic ManagementStrategic Management: set of managerial decisions and actions that determines the long-run performance of a corporation.     Includes:<br />environmental scanning (external & internal)<br />strategy formulation (strategic or long-range planning)<br />strategy implementation<br />evaluation and control<br />Therefore, SM emphasizes the monitoring and evaluation of external opportunities and threats.<br />SM (formerly Business Policy) incorporates such topics as strategic planning, environmental scanning, & industry analysis. <br /><ul><li>Phases of Strategic Management
  2. 2. SM is taken seriously in order to keep their companies competitive in an increasingly volatile environment.
  3. 3. A general firm involves (4) phases of SM:
  4. 4. Phase 1: Basic Financial Planning –
  5. 5. Initiate planning when requested to propose the following year’s budget.
  6. 6. Sales force provides a small amount of environmental info.
  7. 7. Time consuming.
  8. 8. Company activities can be suspended while managers cram ideas into proposed budget.
  9. 9. Time Horizon = usually one year.
  10. 10. Phase 2: Forecast-Based Planning –
  11. 11. Managers attempt to propose 5-year plans.
  12. 12. Environmental data is gathered by managers – on an ad hoc basis – and extrapolate current trends into the future.
  13. 13. Time consuming – usually requires full month on managerial activity to ensure all proposed budgets fit together.
  14. 14. Endless meetings to evaluate proposals and justify assumptions.
  15. 15. Time Horizon = 3 to 5 years.
  16. 16. Phase 3: Externally Oriented (Strategic) Planning –
  17. 17. Top mgmt. takes control of the planning process by initiating strategic planning that will help it become more responsive to changing markets and competitions.
  18. 18. Lower-level mgrs. plans, then the planning staff is to develop strategic plans for the corp.
  19. 19. Consultants provide sophisticated and innovative technique that the planning staff sues to gather information and forecast future trends. ‘
  20. 20. Upper-level mgrs. Meet once a year at a resort “retreat’’ led by key members of the planning staff to evaluate and update the current strategic plan.
  21. 21. Top-Down Planning emphasizes formal strategy formulation and leaves the implementation issues to lower mgmt. levels.
  22. 22. Top mgmt. dvlps. 5-year plans with help from consultants but minimal input from lower-levels.
  23. 23. Phase 4: Strategic Management –
  24. 24. Integrating a series of strategic plans aimed at achieving the company’s objectives. – detail the implementation, evaluation, and control issues.
  25. 25. Plans emphasize probable scenarios and contingency strategies.
  26. 26. Strategic thinking at all-levels of the organization
  27. 27. Resulting strategies may come from anywhere in the organization, planning is no longer top-down: involves all levels of people.
  28. 28. Benefits of Strategic Management
  29. 29. SM emphasizes long-term performance. – hard to sustain it for a long period – challenge.
  30. 30. As environment becomes more unstable, having a strategic planning is important.
  31. 31. Companies that changed their strategies and structures as their environment changed outperformed companies that did not change.
  32. 32. Three Benefits of SM:
  33. 33. Clearer sense of strategic vision for the firm.
  34. 34. Sharper focus on what is strategically important.
  35. 35. Improved understanding of a rapidly changing environment.
  36. 36. Questions to answer:
  37. 37. Where is the org. now? (Not where we hope it is!) –
  38. 38. If no changes are made, where will the org. be in one year? Two years? Five years? ..Are the answers acceptable?
  39. 39. If the answers are not acceptable, what specific actions should mgmt. undertake? What are the risks and payoffs involved?
  40. 40. SM
  41. 41. Most used management tool
  42. 42. Effective at identify new opportunities for growth and in ensuring that all managers have the same goals.</li></ul>1.2 Globalization and Environmental Sustainability: Challenges to Strategic Management<br /><ul><li>Impact of Globalization
  43. 43. Globalization: the integrated internationalization of markets and corporations.
  44. 44. Large corps. Are now using matrix structures in which product units are interwoven with country or regional units.
  45. 45. Why Global Markets instead of national?
  46. 46. Lower prices/costs
  47. 47. To stay competitive
  48. 48. SM helps keep track of international developments and position a company for long-term competitive advantage.
  49. 49. Impact of Environmental Sustainability
  50. 50. Environmental Sustainability: refers to the use of business practices to reduce a company’s impact upon the natural, physical environment.
  51. 51. Climate change is playing a big role in business decision making.
  52. 52. A firm should evaluate its vulnerability to climate-related effects such as regional shifts in the availability of energy and water, the reliability of infrastructures and supply chains, and the prevalence of infectious disease. – Porter & Reinhardt
  53. 53. Climate Change Effects on Industries & Companies (6):
  54. 54. Regulatory Risk
  55. 55. Kyoto Protocol – requires the developed countries (and thus the companies operating with them) to reduce carbon dioxide and other greenhouse gases by an average of 6% from 1990 levels by 2012.
  56. 56. Emission trading programs
  57. 57. Earn credits toward their emissions by investing in emissions
  58. 58. Supply Chain Risk
  59. 59. Product & Technology Risk
  60. 60. Litigation Risk
  61. 61. Environmental Sustainability Issue: Projected effects of Climate ChangeTemperature IncreaseGlobal average warming of approximately 0.2 degrees Celsius each decade.Long-term warming associated with double carbon dioxide concentrates in the range of 2 to 4.5 degrees CelsiusFewer cold days and nights; warmer and more frequent hot days & nightsIncreased frequency, intensity, and duration of heat waves in central Europe, western U.S., East Asia, and KoreaSea Level RiseSea level will continue to rise due to thermal expansion of seawater and loss of land ice at greater rates.Sea level rise of 18 to 59 centimeters by the end of the 21st century.Warming will continue to contributing to sea level rise for many centuries even if green house gas concentrations are stabilized. Precipitation & HumidityIncreasing #’s of wet days in high latitudes; increasing #s of dry spells in subtropical areas.Annual precipitation increases in most of northern Europe, Canada, Northeastern U.S. and the Arctic.Winter precipitation increases in northern Asia and the Tibetan Plateau.Dry spells increase in length and frequency in the Mediterranean, Australia, and New Zealand; seasonal droughts increase in many mid-latitude continent interiors. Extreme Weather-Related EventsIncreasing intense tropical cyclone activity. Increasing frequency of flash floods and large-area floods in many regions. Increasing risk of drought in Australia, eastern New Zealand, and the Mediterranean, with seasonal droughts in central Europe & Central America.Increasing wildfires in arid and semi-arid areas such as Australia and the Western U.S.Other Related EffectsDecreasing snow season length and depth in Europe & North America.Fewer cold days & nights leading to decreasing frosts.Accelerated glacier loss.Reduction in and warming of permafrost.
  62. 62. Reputational Risk
  63. 63. Physical Risk</li></ul>1.3 Theories of Organizational Adaptation<br /><ul><li>Population Ecology –
  64. 64. Population Ecology: Once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions.
  65. 65. Inertia prevents the organization from changing, thus the org. becomes replaced by those orgs. (bought out/bankrupt) who are more suited to the new environment.
  66. 66. Criticism: research fails to support the arguments of population ecology.
  67. 67. Institutional Theory –
  68. 68. Institution Theory: proposes that orgs can and do adapt to changing conditions by imitating other successful orgs’ strategies and management techniques.
  69. 69. Criticism: does not explain how or by whom successful new strategies are developed in the first place.
  70. 70. Strategic Choice Perspective –
  71. 71. Strategic Choice Perspective: proposes that not only do orgs adapt to a changing environment, but they also have the opportunity and power to reshape their environment.
  72. 72. Supported by research that indicates the decisions of a firm’s mgmt.. have at least great an impact on firm performance as overall industry factors.
  73. 73. Dominant theory (based upon making rational decisions)
  74. 74. Organizational Learning Theory –
  75. 75. Organizational Learning Theory: says that an org adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and the environment.
  76. 76. Expands on the Strategic Choice Perspective by including people at all levels becoming involved in providing input into strategic decisions.
  77. 77. Shift from vertically organized, top-down type of orgs a more horizontally managed, interactive organization. </li></ul>1.4 Creating a Learning Organization<br /><ul><li>SM is the primary value in helping an org operate successfully in a dynamic, complex environment by becoming less bureaucratic and more flexible.
  78. 78. There is no such thing as a permanent competitive advantage.
  79. 79. Hypercompetition: any sustainable competitive advantage should consist of a series of strategic short-term thrusts instead of a centrally managed 5-year plan.
  80. 80. Strategic Flexibility –
  81. 81. Defined: the ability to shift from one dominant strategy to another.
  82. 82. Demands a long-term commitment to the development and nurturing of critical resources.
  83. 83. Demand companies to become learning organization – an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights.
  84. 84. Learning Organizations four (4) main activities–
  85. 85. Solving problems systematically
  86. 86. Experimenting with new approaches
  87. 87. Learning from their own experiences and past history as well as from the experiences of others.
  88. 88. Transferring knowledge quickly and effectively.
  89. 89. Alfred Chandler –
  90. 90. “structure follows strategy”
  91. 91. “paths of learning” – organizational strengths derive from learned capabilities.
  92. 92. Companies spring from an individual entrepreneur’s knowledge, which then evolves into organization knowledge.
  93. 93. Organization Knowledge 3 basic strengths:
  94. 94. Technical skills – research
  95. 95. Functional knowledge – production and marketing
  96. 96. Managerial expertise
  97. 97. Once a corporation has built its learning base to the point where it has become a core company in its industry, entrepreneurial startups are rarely able to successfully enter.
  98. 98. People at all levels participate in strategic mgmt. to scan the environment shifts, and working with others to continuously improve work methods, procedures, and evaluation techniques.
  99. 99. Organizations are deemed to be more successful when they take risks and are able to learn from those experiences.
  100. 100. Multi-divisional corporations that establish ways to transfer knowledge across divisions are more innovated than other diversified corporations that do not. </li></ul>1.5 Basic Model of Strategic Model<br /><ul><li>Four (4) elements in Strategic Management:
  101. 101. Environmental Scanning
  102. 102. 53340098425Strategy Formulation
  103. 103. Strategy Implementation
  104. 104. Evaluation and Control
  105. 105. Basic Elements of the Strategic Management Process: </li></ul>It is a planning model that presents what a corporations should do in terms of the strategic management process, not what any particular firm may actually do. The rational planning model predicts that as the environmental uncertainty increases, corporations that work more diligently to analyze and predict more accurately the changing situation in which they operate will outperform those who do not.<br /><ul><li>Strategic Management Model
  106. 106. Environmental Scanning
  107. 107. Environmental Scanning: the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation.
  108. 108. Strategic Factors: those external and internal elements that will determine the future of the corporation.
  109. 109. SWOT Analysis: an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific company.
  110. 110. External Environment: consists of variables that are outside the organization and typically within the short-run control of top management. (Opportunities and Threats)
  111. 111. Industry: general forces and trends within the natural or societal environments or specific factors that operate within an organization’s specific task environment.
  112. 112. Internal Environment: variables that are within the organization itself and are not usually within the short-run control of top-management (Strengths and Weaknesses).
  113. 113. Strategy Formulation
  114. 114. Strategy Formulation: the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses (SWOT). --- includes defining corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.
  115. 115. Mission
  116. 116. Mission: the purpose or reason for the organization’s existence.
  117. 117. Tells what the company is providing to society – their services/products
  118. 118. Defines the fundamental, unique purpose that sets a company apart from other similar firms and identifies the scope/domain of the company’s operations in terms of products/services offered and markets served.
  119. 119. Great mission statements show that firms have significantly higher growth than those that don’t.
  120. 120. Promotes a sense of shared expectations in employees and communicates a public image to important stakeholder groups in the company’s task environment.
  121. 121. Vision: describes what the organization would like to become.
  122. 122. Values statement: values and philosophy of doing business
  123. 123. Broad Mission Statement:
  124. 124. One that is used by many corporations.
  125. 125. Keeps the company from restricting itself to one field or product line, but it fails to clearly identify either what it makes or which products/markets it plans to emphasize.
  126. 126. Best in a stable environment that lacks growth opportunities.
  127. 127. Narrow Mission Statement:
  128. 128. very clearly states the organization’s primary business
  129. 129. May limit the scope of the firm’s activities in terms of the product or service offered, the technology used, and the market served.
  130. 130. Works best in a turbulent industry bc it keeps the firm focused on what it does best.
  131. 131. Objectives
  132. 132. Objectives: the end results of planned activity
  133. 133. Stated in action verbs and tell what is to be accomplished by when and quantified if possible.
  134. 134. Often starts with the word to.
  135. 135. Goal: is often used interchangeably with the term objective. An open ended statement of what one wants to accomplish, with no quantification of what it is to be achieved and no time criteria for completion.
  136. 136. Strategies
  137. 137. Strategy: forms a comprehensive master plan that states how the corporation will achieve its mission and objectives.
  138. 138. Maximizes competitive advantage and minimizes competitive disadvantage.
  139. 139. Three (3) types of Strategy used by firms simultaneously: corporate, business, functional.
  140. 140. Corporate Strategy:
  141. 141. Describes a company’s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines.
  142. 142. Fits within three (3) categories of stability, growth, and retrenchment.
  143. 143. Business Strategy:
  144. 144. Occurs at the business unite/product level, and it emphasizes improvement of the competitive position of a corporation’s products or services in the specific industry of market segment served by that business unit.
  145. 145. Fits within two (2) categories of competitive and cooperative strategies.
  146. 146. Functional Strategy:
  147. 147. Approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity.
  148. 148. Concerned with developing and nurturing distinctive competence to provide a company or business unit with a competitive advantage.
  149. 149. A Hierarchy of Strategy: a grouping of strategy types by level in the organization. A nesting of one strategy within another so that they complement and support one another.
  150. 150. Dilemmas:
  151. 151. No formal stated objectives.
  152. 152. Strategies that have never been articulated/analyzed.
  153. 153. Management’s actions haven’t been looked upon.
  154. 154. Policies
  155. 155. Policy: a broad guideline for decision making that links the formulation of a strategy with its implementation.
  156. 156. Policies are used to make sure that employees throughout the firm make decisions and take actions that support the corp’s mission, objectives, and strategies.
  157. 157. Strategy Implementation
  158. 158. Strategy Implementation: process by which strategies and policies are put into action through the development of programs, budgets, and procedures. – might involve changes w/ culture, structure, and/or mgmt.. system of the entire org.
  159. 159. Operational planning – Implementation conducted by middle- and lower-level managers, with review by top mgmt.. Involves day-to-day decisions in resource allocation.
  160. 160. Programs
  161. 161. Program: a statement of the activities or steps needed to accomplish a single-use plan. Makes a strategy action oriented.
  162. 162. May involve restructuring the corporation, changing the company’s internal culture, or beginning a new research effort.
  163. 163. Budgets
  164. 164. Budget: a statement of a corporation’s programs in terms of dollars.
  165. 165. Used in planning and control, a budget lists the detailed cost of each program.
  166. 166. “hurdle rate” – the demand of a certain % return on investment (ROI).
  167. 167. Has to ensure that new programs will add to the corp’s profit performance and thus build shareholder value.
  168. 168. Procedures
  169. 169. Procedures (Standard Operating Procedures (SOP): a system of sequential steps/techniques that describe in detail how a particular task or job is to be done.
  170. 170. Details the various activities that must be carried out in order to complete the corporation’s program.
  171. 171. Evaluation and Control
  172. 172. Evaluation and Control: process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance.
  173. 173. A final major element of strategic element.
  174. 174. Managers use resulting info to take corrective action and resolve problems.
  175. 175. Can pinpoint weaknesses in previously implemented strategic plans and thus stimulate the entire process to start again.
  176. 176. Performance: the end result of activities. (effectiveness)
  177. 177. Includes the actual outcomes of strategic mgmt. process.
  178. 178. The effectiveness of strategic mgmt.. is measured in terms of improvement of an org’s performance, measured in terms of profits and ROI.
  179. 179. Mgrs. must obtain clear, prompt, and unbiased info from the people below hierarchy in order for evaluation & control to be effective.
  180. 180. Adjustments in strategy formulation and implementation can be made.
  181. 181. Feedback/Learning Process
  182. 182. Businesses must “re-loop” after developing strategies and programs they like to revise/correct decisions made earlier in the process. </li></ul>1.6 Initiation of Strategy: Triggering Events<br /><ul><li>Henry Mintzberg – discovered that strategy formulation is typically not a regular, continuous process.
  183. 183. Punctuated Equilibrium – describes corporations as evolving through relatively long periods of stability (equilibrium periods) punctuated by relatively short bursts of fundamental change (revolutionary periods).
  184. 184. Triggering event: something that acts as a stimulus for a change in strategy.
  185. 185. Examples of triggering events:
  186. 186. NEW CEO Succession
  187. 187. External Intervention
  188. 188. Threat of a change in ownership
  189. 189. Performance Gap
  190. 190. Strategic Inflection Point</li></ul>1.7 Strategic Decision Making<br /><ul><li>What Makes A decision Strategic
  191. 191. Strategic Decisions: deals with the long-run future of an entire organization
  192. 192. Three (3) characteristics:
  193. 193. Rare: Strategic decisions are unusual and typically have no precedent to follow.
  194. 194. Consequential: Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels.
  195. 195. Directive: Strategic decisions set precedents for lesser decisions and future actions throughout an organization.
  196. 196. Mintzberg’s Modes of Strategic Decision Making
  197. 197. Three (3) Approaches/modes of strategic decision making:
  198. 198. Entrepreneurial mode:
  199. 199. Strategy is made by ONE powerful individual.
  200. 200. Focus on opportunities: problems are secondary.
  201. 201. Strategy is guided by the founder’s vision of discretion and is exemplified by large, bold decisions.
  202. 202. Ex: Amazon Jeff Bezos
  203. 203. Adaptive mode:
  204. 204. “muddling through” – this decision-making mode is characterized by reactive solutions to existing problems, rather than a proactive search for new opportunities.
  205. 205. Concerns are concentrated on priorities of objectives.
  206. 206. Strategy is fragmented and is developed to move a corporation forward incrementally.
  207. 207. Planning Mode:
  208. 208. Involves systematic gathering of appropriate info for situation analysis, the generation of feasible alternative strategies and the rational selection of the most appropriate strategy.
  209. 209. Includes both the proactive search for new opportunities and the reactive solution of existing problems.
  210. 210. Logical incremntalism (added by Quinn):
  211. 211. Viewed as a synthesis of planning, adaptive, and to a lesser extent, the entrepreneur mode.
  212. 212. Top mgmt. has a clear idea of the corp’s mission and objectives, but in its development of strategies, it chooses to use “an interactive process in which the organization probes the future, experiments and learns from a series of partial (incremental) commitments rather than through global formulations of total strategies.
  213. 213. Strategy is allowed to emerge out of debate, discussion, and experimentation even though objectives and missions are set.
  214. 214. Is useful when the environment is changing rapidly and when it is important to build consensus and develop needed resources before committing an entire corporation to a specific strategy.
  215. 215. Strategic Decision-Making Process: Aid to Better Decisions
  216. 216. Planning mode is the most appropriate for dealing with complex, changing environments. It’s more analytical and less political.
  217. 217. Strategic Decision-Making process: 8-step to improve the making of strategic decisions
  218. 218. Evaluate current performance results
  219. 219. Review corporate governance
  220. 220. Scan and assess the external environment
  221. 221. Scan and assess the internal corporate environment
  222. 222. Analyze strategic (SWOT) factors
  223. 223. Generate, evaluate, and select the best alternative strategy
  224. 224. Implement selected strategies
  225. 225. Evaluate implemented strategies</li></ul>1.8 The Strategic Audit: Aid to Strategic Decision-Making <br /><ul><li>Strategic Audit (SA): provides a checklist of questions, by area or issue that enables a systematic analysis to be made of various corporate functions and activities.
  226. 226. A Strategic Audit is a type of management audit and is extremely useful as a diagnostic tool to pinpoint corporate wide problem areas and to highlight organizational strengths and weaknesses.
  227. 227. SA can help determine why a certain area is creating problems for a corporation and help generate solutions to the problem. </li></ul>Chapter 2: Corporate Governance <br />2.1 Role of the Board of Directors<br />Corporation: a mechanism established to allow different parties to contribute capital, enterprise, and labor for their mutual benefits. <br /><ul><li>The investor/shareholder participates in the profits of the enterprise w/o taking responsibility for the operations.
  228. 228. Management runs the company w/o being responsible for personally providing the funds.
  229. 229. Limited liability for Shareholders: The right to elect directors (that protects their interests)
  230. 230. Directors have authority to establish basic corporate policies & ensured they are followed.
  231. 231. BOD has obligation to approve decisions that affects long-run performance of corp.
  232. 232. Corp. is governed by the BOD overseeing top management, w/ the concurrence of the shareholder. </li></ul>Corporate Governance: relationship among the BOD, mgmt., and shareholders in determining the direction & performance of the corporation.<br /><ul><li>Responsibilities of The Board
  233. 233. Five Board of Director Responsibilities (5):
  234. 234. Setting Corporate Strategy, overall direction, mission, or vision
  235. 235. Hiring and firing the CEO and top management
  236. 236. Controlling, monitoring, or supervising top management
  237. 237. Reviewing and approving the use of resources
  238. 238. Caring for shareholder interests
  239. 239. U.S. CEOS reported 4 most important issues:
  240. 240. Corporate performance
  241. 241. CEO Succession
  242. 242. Strategic Planning
  243. 243. Corporate Governance
  244. 244. Additional Director duties:
  245. 245. Ensure that corp. is managed in accordance w/ the laws of the state in which it is incorporated. (U.S.)
  246. 246. Ensure mgmt’s adherence to laws and regulations that deal w/ issuance of securities, insider trading, and conflicts-of-interest situations.
  247. 247. Be aware of the needs and demands of constituent groups so that they can achieve a judicious balance among the interests of these diverse groups while ensuring the continued functioning of the corp
  248. 248. Due Care: Board is required to direct the affairs of the corp, but not to manage them.
  249. 249. Role of the Board in Strategic Management
  250. 250. Monitor
  251. 251. Keep abreast of developments inside & outside the Corporation
  252. 252. Evaluate & Influence
  253. 253. Examine mgmt’s proposals, decisions, and actions; agree or disagree
  254. 254. Give advice and offer suggestions
  255. 255. Outline alternatives
  256. 256. Initiate & Determine
  257. 257. A board can delineate a corporation’s mission and specify strategic options to its mgmt.
  258. 258. Board of Director’s Continuum
  259. 259. Board of Director’s Continuum: shows the possible degree of involvement (from low to high) in the strategic management process.
  260. 260. DEGREE OF INVOLVEMENT IN STRATEGIC MANAGEMENT </li></ul>Low High<br />(Passive)(Active)<br />PHANTOMRUBBER STAMPMINIMAL REVIEWNOMINAL PARTICIPATIONACTIVE PARTICIPATIONCATALYSTNever knows what to do, if anything; no degree of involvement Permits officers to make all decisions. It votes as the officers recommend on action issuesFormally reviews selected issues that officers bring to its attention.Involved to a limited degree in the Performance or Review of selected key decisions, indicators, or programs of management.Approves questions, and makes final decisions on mission, strategy, policies, and objectives. Have active board committees. Performs fiscal & mgmt. audits.Takes the leading role in establishing & modifying the mission, objectives, strategy, and policies. It has a very active strategy committee. <br /><ul><li>High Active boards:
  261. 261. Involvement in SM is positively related to a corp.’s financial performance and its credit rating.
  262. 262. Monitors, evaluate & influence, initiates and determine decisions very seriously.
  263. 263. Provides advice when necessary and keeps management alert.
  264. 264. Phantom/Rubber Stamp:
  265. 265. Never initiates/determine strategy unless a crisis occurs
  266. 266. Less involved w/ corp’s affairs
  267. 267. Mushroom Treatment: CEO serves as the Chairman of the Board, nominates all directors, and have them work under his/her demand.
  268. 268. Members of A Board of Directors
  269. 269. Insider Directors (Management directors): typically officers or executives employed by the corporation
  270. 270. Outside Directors: (non-management directors) may be executives of other firms but are not employees of the board’s corporation.
  271. 271. U.S. trend to have more outsiders on boards while reduce the total size on board.
  272. 272. There’s a negative relationship between board size & firm profitability.
  273. 273. People who favor a high proportion of outsiders state that outside directors are less biased and more likely to evaluate management’s performance objectively than are inside directors.
  274. 274. U.S. Securities Exchange Commission (SEC)
  275. 275. Required that majority of board be independent outsiders
  276. 276. Required that all companies staff their audit, compensation, and nominating/corporate governance committees entirely w/ independent, outside members.
  277. 277. Agency Theory: states that problems arise in corporations because the agents (to mgmt.) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corp.
  278. 278. Suggests that a majority of a board needs to be from outside of the firm so that top mgmt. is prevented from acting selfishly to the detriment of the shareholders.
  279. 279. Argues that managers in mgmt.-controlled firms (contrasted w/owner-controlled firms in which the founder or family still own a significant amount of stock) select less risky strategies w/ quick payoffs in order to keep their jobs.
  280. 280. Reveals that manager-controlled firms (w/ weak boards) are more likely to go into debt to diversify into unrelated markets (thus quickly boosting sales and assets to justify higher salaries for themselves), thus resulting in poorer long-term performance than owner-controlled firms.
  281. 281. Boards w/ larger proportion of outside directors tend to favor growth through international expansion and innovative venturing activities than do boards w/ a smaller proportion of outsiders.
  282. 282. Outsiders tend to be more objective and critical of corporate activities.
  283. 283. Business families w/ larger # of outsiders on the board tended to have better corporate governance and better performance than did boards w/ fewer outsiders.
  284. 284. Steward Ship Theory: proposes that because of their long tenure w/ the corporation, insiders (senior executives) tend to identify w/ the corporation and its success.
  285. 285. Prefers inside over outside directors. Contends that outside directors are less effective than are insiders because the outsiders are less likely to have the necessary interest, availability, or competency.
  286. 286. Executives are most interested in guaranteeing the continued life and success of the corp.
  287. 287. Research indicates that firm performance decreases as the number of directorships held by the avg. board member increases.
  288. 288. Outsider term to be too simplistic by some outsiders are not truly objective and should be considered more as insiders than as outsiders:
  289. 289. Affiliated Directors
  290. 290. Handles the legal/insurance work for the company or are important to suppliers (thus dependent on the current management for a key part of their businesses)
  291. 291. Face a conflict of interest and are not likely to be the objective.
  292. 292. U.S. boards can no longer include representatives of major suppliers or customers or even professional orgs. That might do business w/ the firm, even though these people could provide valuable knowledge/expertise.
  293. 293. Retired Executive Directors
  294. 294. People who used to work for the company (past CEOS) that is partly responsible for the corp’s current strategy and chose his/her replacement.
  295. 295. Many boards of large firms keep the retired CEO for a year or two after retirement as sign of courtesy. – however, they are not able to objectively evaluate the corp’s performance.
  296. 296. Family Directors
  297. 297. are descendants of the founder and own significant blocks of stock (w/ personal agendas based on a family relationship w/ the current CEO)
  298. 298. Globalization of business having an impact on board membership.
  299. 299. Codetermination: Should Employees Serve on Boards?
  300. 300. Codetermination: the inclusion of a corporation’s workers on its board, began only recently in the U.S.
  301. 301. Workers represent themselves on the board not so much as employees but primarily as owners.
  302. 302. Director represents an internal stakeholder, raise the issue of conflict of interest.
  303. 303. Interlocking Directorates (ID)
  304. 304. Direct Interlocking directorate: occurs when two firms share a director or when an executive of one firm sits on the board of as second firm.
  305. 305. Indirect Interlocking directorate: occurs when two corporations have directors who also serve on the board of a third firm (ex: banks)
  306. 306. Clayton Act and the Banking Act of 1933 – prohibited interlocking directorates by U.S. companies competing in the same industry, interlocking continues to occur in almost all corporations, especially large ones.
  307. 307. Interlocking occurs bc large firms have a large impact on other corps. And these other corps, in turn, has some control over the firm’s inputs and marketplace.
  308. 308. ID are useful for gaining both inside info about an uncertain environment and objective expertise about potential strategies and tactics.
  309. 309. Keiretsu – a Japanese term for a set of companies w/ interlocking business relationships and share-holdings.
  310. 310. ID is frowned upon because of the possible conspiracy.
  311. 311. Evidence indicates that well-interlocked corps. Are better able to survive in a highly competitive environment.
  312. 312. Nomination and Election of Board Members
  313. 313. Dangers in allowing a CEO nominating directors:
  314. 314. CEO might select only board members who will not disturb the company’s policies and functioning (CEO’s opinion)
  315. 315. CEO friendly , passive boards result due to their short term (avg. three years)
  316. 316. Staggered boards – Directors in corps. That serves more than one year divides the board into classes and staggers elections so that only a portion of the board stands for election each year.
  317. 317. FOR: It provides continuity by reducing the chance of an abrupt turnover in its membership and that it reduces the likelihood of electing people unfriendly to management (who might be interested in a hostile takeover) through cumulative voting.
  318. 318. AGAINST: they make it more difficult for concerned shareholders to curb a CEO’s power – especially when that CEO is also Chairman of the Board.
  319. 319. Organization of the Board
  320. 320. The size of the board is determined by the corp’s charter and its by-laws, in compliance with state laws. (U.S)
  321. 321. Combined Chair/CEo position is being increasingly criticized because of the potential for conflict of interest.
  322. 322. CEO is supposed to concentrate on strategy, planning, external relations, and responsibility of the board.
  323. 323. Chairman is responsible for ensuring that the board and its committees perform their functions as stated in the board’s charter.
  324. 324. Chairman schedules boar meetings and presides over the annual shareholders’ meetings.
  325. 325. There’s a greater likelihood of fraudulent financial reporting when CEO stock options are not present w/ a combined chairman/CEO.
  326. 326. Lead Director: a person that is consulted by the chair/CEO regarding board affairs and coordinates the annual evaluation of the CEO.
  327. 327. Increase in board independence often results in higher levels of CEO ingratiation behavior aimed at persuading directors to support CEO proposals.
  328. 328. Most effective boards accomplish much of their work through committees. Although they do not usually have legal duties, most committees are granted full power to act with the authority of the board between board meetings.
  329. 329. Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance
  330. 330. Sarbanes-Oxley Act: (2002) U.S. Congress passed this act to protect shareholders from excesses and failed oversight that characterized failures at Enron, Tyco, WorldCom, and other firms.
  331. 331. SOX designed to formalize greater board independence and oversight. (ex: requires that all directors serving on the audit committee be independent of the firm and receive no fees other than for services of the director)
  332. 332. Boards many no longer grant loans to corporate officers
  333. 333. Whistleblowers – Established formal procedures for individuals to report incidents of questionable accounting or auditing.
  334. 334. Firms are prohibited from retaliating against anyone reporting wrongdoing.
  335. 335. Benefit: increased reliable corporate financial statements.
  336. 336. Improving governance
  337. 337. A company has to disclose whether it has adopted a code of ethics that applies to the CEO and to the company’s principal financial officer.
  338. 338. The SEC requires that the audit, nominating, and compensation committees be staffed entirely by outside directors.
  339. 339. New York Stock Exchange (NYSE) reinforced the mandates of SOX by requiring that companies have a nominating/governance committee composed entirely of independent outside directors.
  340. 340. NASDAQ requires that nominations for new directors be made by either a nominating committee of independent outsiders or by a majority of independent outside directors.
  341. 341. Evaluating Governance
  342. 342. Standard & Poor’s (S&P), Moody’s, and more independent rating services help investors evaluate a firm’s corporate governance and established criteria for good governance.
  343. 343. S&P Corporate Governance Scoring System on (4) issues:
  344. 344. Ownership Structure and Influence
  345. 345. Financial Stakeholder Rights and Relations
  346. 346. Financial Transparency and Information Disclosure
  347. 347. Board Structure and Processes
  348. 348. Avoiding Governance Improvements
  349. 349. Some corps. Believe that improving corporate governance will constrain top management’s ability to effectively manage the company.
  350. 350. Companies use multiple classes of stock to keep outsiders from having sufficient voting power to change the company.
  351. 351. Insiders (usually founders) get stock with extra votes, while others get second-class stock w/ fewer votes.
  352. 352. If a corp. in which an individual group or another company controls more than 50% of the voting shares decides to become a “controlled company,” the firm is then exempt from requirements by the NYSE and NASDAQ that a majority of the board and all members of key board committees be independent outsiders.
  353. 353. Trends in Corporate Governance
  354. 354. The role of BOD in the SM of a corp is more likely to be more active in the future.
  355. 355. Investors are willing to pay 16% more for a corp’s stock if it is known to have good corp. governance. The reason:
  356. 356. Good governance leads to better performance over time
  357. 357. Good governance reduces the risk of the company getting into trouble
  358. 358. Governance is a major strategic issue.
  359. 359. Trends in Governance (U.S. and UK):
  360. 360. Boards are getting more involved not only in reviewing and evaluating company strategy but also shaping it.
  361. 361. Institutional investors, such as pension funds, mutual funds, and insurance companies, are becoming active on boards and are putting increasing pressure on top mgmt.. to improve corporate performance. This trend is supported by a U.S. SEC requirement that a mutual fund must publicly disclose the proxy votes cast at company board meetings in its portfolio. This reduces the tendency for mutual funds to rubber-stamp mgmt. proposals.
  362. 362. Shareholders are demanding that directs and top managers own more than token amounts of stock in the corp. Research indicates that boards w/ equity ownership use quantifiable, verifiable criteria (instead of vague, qualitative criteria) to evaluate the CEO. When compensation committee members are significant shareholders, they tend to offer the CEO less salary but with a higher incentive component than do compensation committee members who won little to no stock.
  363. 363. Non-affiliated outside (non-mgmt) directors are increasing their numbers and power in publicly held corps as CEOs loosen their grip on boards. Outside members are taking charge of annual CEO evaluations.
  364. 364. Women and minorities are being increasingly represented on boards.
  365. 365. Boards are establishing mandatory retirement ages for board members – typically around age 70.
  366. 366. Boards are getting smaller – partially bc of the reduction in the number of insiders but also because boards desire new directors to have specialized knowledge and expertise instead of general experience.
  367. 367. Boards continue to take more control of board functions by either splitting the combined Chair/CEO into two separate positions or establishing a lead outside director position.
  368. 368. Boards are eliminating 1970s anti-takeover defenses that served to entrench current management.
  369. 369. As corporations become more global, they are increasingly looking for board members w/ international experience.
  370. 370. Instead of merely being able to vote for or against directors nominated by the board’s nominating committee, shareholders may eventually be allowed to nominate board members. This was originally propped by the SEC in 2004, but was not implemented. Supported by the AFL-CIO, a more nominating process would enable shareholders to vote out directs who ignore shareholder interests.
  371. 371. Society, in the form of special interests groups, increasingly expects BODs to balance the economic goal of profitability w/ the social needs of society. Issues dealing w/ workforce diversity and environmental sustainability are now reaching the board level.</li></ul>2.2 The Role of Top Management<br /><ul><li>Responsibilities of Top Management
  372. 372. Even though SM involves everyone in the org., the BOD holds top mgmt. primarily responsible for the SM for a firm.
  373. 373. Top Management Responsibilities: esp. those of the CEo, involve getting things accomplished through and with others in order to meet corporate objectives.
  374. 374. Multidimensional jobs and is oriented toward the welfare of the total org.
  375. 375. Mgmt task varies from firm to firm. Customized/Developed from an analysis of the mission, objectives, strategies, and key activities of the corp.
  376. 376. Top mgmt. teams w/ a diversity of functional backgrounds, experiences, and length of time w/ the company tend to be significantly related to improvements in corporate market share and profitability.
  377. 377. Highly diverse teams w/ some international experience tend to emphasize international growth strategies and strategic innovation, especially in uncertain environments, to boost financial performance.
  378. 378. Two (2) responsibilities that must be handled for effective SM of the corp by CEO & top mgmt.:
  379. 379. Provide executive leadership and a strategic vision
  380. 380. Manage the strategic planning process
  381. 381. Executive Leadership and Strategic Vision
  382. 382. Executive Leadership: the directing of activities toward the accomplishment of corporate objectives. Important bc it sets the tone for the entire corporation.
  383. 383. Strategic Vision: a description of what the company is capable of becoming.
  384. 384. Successful CEOS noted for having a clear strategic vision, a strong passion for their company, and an ability to communicate w/ others. Often perceived to be dynamic and charismatic leaders – which is especially important for high firm performance and investor confidence in uncertain environments.
  385. 385. Transformational leaders: leaders who provide change and movement in an organization by providing a vision for that change. They have (3) key characteristics:
  386. 386. The CEO articulates a strategic vision for the Corporation
  387. 387. Gives renewed meaning to everyone’s work and enables employees to see beyond the details of their own jobs to the functioning of the total corporation.
  388. 388. Envisions the company to what it can become.
  389. 389. The CEO presents a role for others to identify with and to follow
  390. 390. Leader emphasizes w/ followers and sets an example in terms of behavior, dress, and actions.
  391. 391. CEO attitudes and values is concerned with the corp’s purpose and activities are clear-cut and constantly communicated in words and deeds.
  392. 392. Businesses in which the mgr. has trust of the employees results in higher sales/profits w/ lower turnover.
  393. 393. The CEO communicates high performance standards and also shows confidence in the followers’ abilities to meet these standards:
  394. 394. Leader empowers followers by raising their beliefs in their own capabilities.
  395. 395. No leader ever improved performance by setting easily attainable goals that provided no challenge.
  396. 396. Communicating high expectations to others can often lead to high performance.
  397. 397. CEO must be wiling to follow through by coaching people.
  398. 398. Confident leaders can lead to hubris - in which their confidence blinds them to info that is contrary to a decided course of action.
  399. 399. Managing the Strategic Planning Process
  400. 400. Top mgmt.. in most corps. Must initiate and manage the strategic planning process either by:
  401. 401. Asking business units and functional areas to propose strategic plans for themselves
  402. 402. Begin by drafting an overall corporate plan w/in which units can then build their own plans.
  403. 403. Strategic planning process of all units and functional areas should fit together into an overall corporate plan.
  404. 404. Top mgmt’s job includes the task of evaluating unit plans and providing feedback. – requires each unit to justify its proposed objectives, strategies, and programs in terms of how well they satisfy the org’s overall objectives in light of available resources.
  405. 405. Strategic planning staff – staff that supports both mgmt.. and the business units in the planning process. Prepares the background materials used in senior mgmt’s off-site strategy workshop. Major responsibilities include:
  406. 406. Identify and analyze companywide strategic issues, and suggest corporate strategic alternatives to top mgmt.
  407. 407. Work as facilitators w/ business units to guide them through the strategic planning process.</li></ul>Chapter 3: Social Responsibility and Ethics in Strategic Management<br />3.1 Social Responsibilities of Strategic Decision Makers<br /><ul><li>Social Responsibility: proposes that a private corporation has responsibilities to society that extend beyond making profit.
  408. 408. Responsibilities of a Firm
  409. 409. Milton Friedman’s Traditional View of Business Responsibility (Profit Maximization)
  410. 410. A business person who acts “responsibly” by cutting the price of the firm’s product to prevent inflation, or by making expenditures to reduce pollution, or by hiring the hard-core unemployed, according to Friedman, is spending the shareholder’s money for general shareholder’s interest – can harm the society the firm is trying to help.
  411. 411. By taking on the burden of these social costs, the business becomes less efficient – either prices go up to pay for the increased costs or investment in new activities and research is postponed.
  412. 412. Friedman referred to the social responsibility of business as a “fundamentally subversive doctrine”:
  413. 413. “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays w/I the rules of the game, which is to say, engages in open and free competition w/o deception or fraud”
  414. 414. Archie Carroll’s Four Responsibilities of Business
  415. 415. William J. Byron states that profits are merely a means to an end, not an end in itself – it cannot be the primary obligation of business.
  416. 416. Carroll proposes that managers of business orgs have four responsibilities:
  417. 417. Economic responsibilities of a business org’s management are to produce goods and services of value to society so that the firm may repay its creditors and shareholders.
  418. 418. Legal responsibilities are defined by gvmt’s in laws that management is expected to obey.
  419. 419. Ethical responsibilities of an org’s mgmt. are to follow the generally held beliefs about behavior in a society.
  420. 420. Discretionary responsibilities are the purely voluntary obligations a corporation assumes.
  421. 421. Responsibilities of Business:
  422. 422. Social Responsibilities
  423. 423. Economic(Must Do)Legal(Have to Do)Ethical(Should Do)Discretionary(Might Do)
  424. 424. Responsibilities in order of priority. A firm must first make a profit to satisfy its economic responsibilities. To continue in existence, the firm must follow the laws, thus fulfilling its legal responsibilities.
  425. 425. Argues that bus. Managers have responsibilities beyond economic and legal ones.
  426. 426. A firm can fulfill its ethical responsibilities by taking actions that society tends to value but has not yet put into law.
  427. 427. Discretionary resp. – purely voluntary actions that society has not yet decided are important.
  428. 428. Friedman says that socially responsible hurt a firm’s efficiency.
  429. 429. Carroll proposes that a lack of social resp. results in increased government regulations, while reduce a firm’s efficiency.
  430. 430. Social capital –the goodwill of key stakeholders, that can be used for competitive advantage.
  431. 431. Sustainability: More than Environmental?
  432. 432. Crate and Matten point that the concept of sustainability can be broadened to include economic and social as well as environmental concerns.
  433. 433. In order for a business corp. to be sustainable, that is, to be successful over a long period of time, it must satisfy all of its economic, legal, ethical and discretionary responsibilities.
  434. 434. Corporate Stakeholders
  435. 435. Stakeholder: large groups w/ interest in a business org’s activities that affect or are affected by the achievement of the firm’s objectives.
  436. 436. Enterprise strategy – an overarching strategy that explicitly articulates the firm’s ethical relationship w/ its stakeholders.
  437. 437. Stakeholder Analysis
  438. 438. Stakeholder analysis: the identification and evaluation of corporate stakeholders. Can be done in 3 step process:
  439. 439. Step 1:
  440. 440. Identify primary stakeholders – those who have a direct connection with the corp. and who have sufficient bargaining power to directly affect corporate activities.
  441. 441. Primary stakeholders that are usually affected by the corp. include: customers, employees, suppliers, shareholders, and creditors.
  442. 442. Corp’s systematically monitors stakeholders bc they are important to a firm’s meeting its economic and legal resp.
  443. 443. Shareholder want dividents and stock price appreciation.
  444. 444. Step 2:
  445. 445. Stakeholder’s analysis is to identify the secondary stakeholders – those who have only an indirect stake in the corp, but who are also affected by corporate activities.
  446. 446. Secondary Stakeholders include nongovernmental orgs, activists, local communities, competitors, governments, trade associations.
  447. 447. These stakeholders do not affect the corp’s ability to meet its economic or legal responsibilities. They are usually not monitored.
  448. 448. Relationships are usually based on questionable assumptions about each other’s needs and wants.
  449. 449. Step 3:
  450. 450. Stakeholder analysis is to estimate the effect on each stakeholder group from any particular strategic decision.
  451. 451. Secondary stakeholders may be ignored/discounted as unimportant because primary decision criteria are typically economic.
  452. 452. Stakeholder Input
  453. 453. After stakeholder impacts have been identified, managers then decide whether stakeholder input should be invited into the discussion of the strategic alternatives.
  454. 454. One or more groups, at any one time, probably will be dissatisfied w/ an org’s activities – even if mgmt. is trying to be socially responsible.
  455. 455. Strategic managers should consider how each alternative will affect various groups.</li></ul>3.2 Ethical Decision Making<br /><ul><li>Some Reasons for Unethical Behavior
  456. 456. Due to a country’s governance system is rule-based or relationship-based. Relationship-based countries tend to be less transparent and have a higher degree of corruption than do rule-based countries.
  457. 457. A reason what is often perceived to be unethical behavior lies in differences in values between business people and stakholders.
  458. 458. “Frogs in boiling water” analogy – if, for example, one were to toss a frog into a pan of boiling water, according to the folk tale, the frog would quickly jump out. It might be burned, but the frog would survive. However, it one put a frog in a pan of cold water and turned up the heat very slowly, the frog would not sense the increasing heat until it was too lethargic to jump out and would be boiled.
  459. 459. Moral Relativism
  460. 460. Moral Relativism: claims that morality is relative to some personal, social, or cultural standard and that there is no method for deciding whether one decision is better than another.
  461. 461. Four types of moral relativism to justify behavior:
  462. 462. Naïve Relativism: based on the belief that all moral decisions are deeply personal and that individuals have the right to run their own lives, adherents of moral relativism argue that each person should be allowed to interpret situations and act on his/her own moral values.
  463. 463. Role Relativism: based on the belief that social roles carry w/ them certain obligations to that role, adherents of role relativism argue that a manager in charge of a work unit must put aside his or her personal beliefs and do instead what the role requires, that is, act in best interests of the unit.
  464. 464. Social Group relativism: Based on a belief that morality is simply a matter of following the norms of an individual’s peer group, social group relativism argues that a decision is considered legitimate if it is common practice, regardless of other considerations (everyone’s doing it)/
  465. 465. Cultural relativism: based on the belief that morality is relative to a particular culture, society, or community, adherents of cultural relativism argue that people should understand the practices of other societies, but not judge them.
  466. 466. Kohlberg’s Levels of Moral Development
  467. 467. Another reason why some bus. Ppl. Might be seen unethical is that they may have no well-developed personal sense of ethics.
  468. 468. Levels of Moral Development: Kohlberg says that an individual moves from total self-centeredness to a concern for universe value. Three levels as follows:
  469. 469. The pre-conventional level: level characterized by a concern for self
  470. 470. The conventional level: level characterized by considerations of society’s laws and norms.
  471. 471. The principled level: level characterized by a person’s adherence to an internal moral code. An individual at this level looks beyond norms or laws to find universal values or principles.
  472. 472. Encouraging Ethical Behavior
  473. 473. Codes of Ethics
  474. 474. Codes of Ethics: specifies how an org. expects its employees to behave while on the job.
  475. 475. A useful way to promote ethical behavior.
  476. 476. Code of ethics:
  477. 477. Clarifies company expectations of employee conduct in various situations
  478. 478. Makes clear that the company expects its people to recognize the ethical dimensions in decisions and actions.
  479. 479. Whistle-Blowers: those employees who report illegal or unethical behavior on the part of others.
  480. 480. The U.S. False Claims Act
  481. 481. Guidelines for Ethical Behavior
  482. 482. Ethics: defined as the consensually accepted standards of behavior for an occupation, a trade, or a profession.
  483. 483. Morality: is the precepts of personal behavior based on religious of philosophical grounds.
  484. 484. Law: refers to formal codes that permit or forbid certain behaviors and may or may not enforce ethics or morality.
  485. 485. Three Basic Approaches to ethical behavior:
  486. 486. Utilitarian Approach: proposes that actions and plans should be judged by their consequences. People should therefore, behave in a way that will produce the greatest benefit to society and produce the least harm or the lowest cost. Research reveals that only the stakeholders who have the most power (ability to affect the company), legitimacy (legal or moral claim on company resources), and urgency (demand for immediate attention) are given priority by CEOs. It is therefore likely that only the most obvious stakeholders will be considered, while others are ignored.
  487. 487. Individual Rights Approach: proposes that human being have certain fundamental rights that should be respected in all decisions. A particular decision or behavior should be avoided if it interferes w/ the rights of others.
  488. 488. Justice Approach: proposes that decision makes be equitable, fair, and impartial in the distribution of costs and benefits to individuals and groups. It follows the principles of distributive justice (people who are similar on relevant dimensions such as job security should be treated the same way) and fairness (liberty should be equal for all persons). This justice approach can also include the concepts of retributive justice (punishment should be proportional to the offense) and compensatory justice (wrongs should be compensated in proportion to the offense). Affirmative action issues such as reverse discrimination are example of conflicts between distributive and compensatory justice.
  489. 489. Questions to ask regarding an act or decision:
  490. 490. Utility: Does it optimize the satisfactions of all stakeholders?
  491. 491. Rights: Does it respect the rights of the individuals involved?
  492. 492. Justice: Is it consistent with the canons of justice?
  493. 493. Immanual Kant’s categorical imperatives to guide our actions
  494. 494. A person’s action is ethical only if that persona is willing for that same action to be taken by everyone who is in a similar situation. This is the same as the Golden Rule: treat others as you would like them to treat you.
  495. 495. A person should never treat another human being simply as a means but always as an end. This means that an action is morally wrong for a person if that person uses others merely as means for advancing his/her own interests. To be moral, the act should not restrict other people’s actions so that they are disadvantaged in some way.</li></ul>Chapter 4: Environmental Scanning and Industry Analysis <br />4.1 Environmental Scanning <br /><ul><li>Identifying External Variables
  496. 496. Environmental Scanning: the monitoring, evaluation, and dissemination of information form the external and internal environments to key people w/I the organization.
  497. 497. Natural Environment: includes physical resources, wildlife, and climate that are an inherent part of existence on Earth.
  498. 498. Societal Environment: mankind’s social system that includes general forces that do not directly touch on the short-run activities of the organization that can, and often do, influence its long run decisions.
  499. 499. Four Forces that affect multiple industries:
  500. 500. Economic Forces that regulate the exchange of materials, money, energy, and information.
  501. 501. Technological Forces that generate problem-solving inventions.
  502. 502. Political-Legal Forces that allocate power and provide constraining and protecting laws and regulations.
  503. 503. Sociocultural Forces that regulate the values, mores, and customs of society.
  504. 504. Task Environment: includes those elements or groups that directly affect a corporation and in turn, are affected by it (governments, local communities, suppliers, competitors, customers, creditors, etc).
  505. 505. Industry Analysis: (popularized by Michael Porter): refers to an in-depth examination of key factors within a corporation’s task environment.
  506. 506. The natural, societal, and task environments must be monitored to detect the strategic factors that are likely in the future to have a strong impact on corp. success or failure.
  507. 507. Changes in the natural environment usually affect a business corp. first through its impact on the societal environment in terms of resource availability and costs and then upon the task environment in terms of growth or decline of particular industries.
  508. 508. Scanning the Natural Environment
  509. 509. 20th century, the natural environment was perceived by business ppl a given – something to exploit, not conserve. It was viewed as a free resources, something to be taken or fought over. Once controlled, these resources were considered assets and thus valued as part of the general economic system – a resource to be bought, sold, or sometime shared.
  510. 510. Externalities – side effects such as pollution. Costs not included in a business firm’s accounting system, but felt by others.
  511. 511. A business corp. must scan the natural environment for factors that might previously have been taken for granted, such as the availability of fresh water and clean air.
  512. 512. Global Warming means that aspects of the natural environment (sea level, whether, climate) are becoming increasingly uncertain and difficult to predict.
  513. 513. Carbon footprint – the amount of greenhouse gases it is emitting into the air.
  514. 514. Research reveals that scanning the market for environmental issues is positively related to firm performance because it helps management identify OPPORTUNITIES to fulfill future market demand based upon environmentally friendly products or processes.
  515. 515. Scanning the Societal Environment: STEEP Analysis
  516. 516. Differences(such as primary role of business) in different countries translate into different trade regulations and varying difficulty in the repatriation of profits (the transfer of profits from a foreign subsidiary to a corporation’s headquarters) form one group to another.
  517. 517. STEEP ANALYSIS: Monitoring Trends in the Societal and Natural Environments
  518. 518. StEEP Analysis: the scanning of Sociocultural, Technological, Ecological, Economic, and Political-Legal environmental forces. Scan in each area on trends that have corporate wide relevance.
  519. 519. Economic part can have an obvious impact on business activity – example: increase in interest rates means fewer sales of major home appliances.
  520. 520. Technological part also has a great impact
  521. 521. Scanning the Task Environment
  522. 522. Identifying External Strategic Factors</li></ul>4.2 Industry Analysis: Analyzing the Task Environment<br /><ul><li>Porter’s Approach to Industry Analysis
  523. 523. Threat of New Entrants
  524. 524. New Entrants: an industry typically bring to it new capacity, a desire t gain market share, and substantial resources.
  525. 525. Entry Barrier: an obstruction that makes it difficult for a company to enter an industry.
  526. 526. Possible barriers to entry are:
  527. 527. Economies of Scale: Scale of economies in the production and sale of microprocessors, for example, gave Intel a significant cost advantage over any new rival.
  528. 528. Product differentiation: Corporations such as P&G and General Mills, which manufacture products such as Tide and Cheerios, create high entry barriers through their high levels of advertising and promotion.
  529. 529. Capital Requirements: The need to invest huge financial resources in manufacturing facilities in order to produce large commercial airplanes creates a significant barrier to entry to any competitor for Boeing and Airbus.
  530. 530. Switching Costs: Once a software program such as Excel or word becomes established in an office, office managers are very reluctant to switch to a new program because of the high training costs.
  531. 531. Access to distribution channels: Small entrepreneurs often have difficulty obtaining supermarket shelf space for their goods because large retailers charge for space on their shelves and give priority to the established firms who can pay for the advertising needed to generate high demand.
  532. 532. Cost disadvantages independent of size: Once a new product earns sufficient market share to be accepted as the standard for that type of product, the maker has a key advantage.
  533. 533. Government policy: Governments can limit entry into an industry through licensing requirements by restricting access to raw materials, such as oil-drilling sites in protected areas.
  534. 534. Rivalry Among Existing Firms
  535. 535. Rivalry is related to the presence of several factors:
  536. 536. Number of competitors: When competitors are few and roughly equal in size, such as in the auto and major home appliance industries, they watch each other carefully to make sure that they match any move by another firm w/ an equal countermove.
  537. 537. Rate of industry growth: Any slowing in passenger traffic tends to set off price wars in the airline industry because the only path to growth is to take sales away from a competitor.
  538. 538. Product or service characteristics: A product can be very unique, w/ many qualities differentiating it from others of its kind or it may be a commodity, a product whose characteristics are the same, regardless of who sells it. Ex: gas stations based on location and pricing bc they view gasoline as a commodity.
  539. 539. Amount of fixed costs: Because airlines must fly their planes on a schedule, regardless of the number of paying passengers for one flight, they offer cheap standby fares whenever a plane have empty seats.
  540. 540. Capacity: If the only way a manufacturer can increase capacity is in a large increment by building a new plant (as in the paper industry), it will run that new plant at full capacity to keeps its unit costs as low as possible – thus producing so much that the selling price falls throughout the industry.
  541. 541. Height of exit barriers: Exit barriers: keep a company from leaving an industry. The brewing industry, has a low percentage of companies that voluntarily leave the industry because breweries are specialized assets w/ few uses except for making beer.
  542. 542. Diversity of rivals: Rivals that have very different ideas of how to compete are likely to cross paths often and unknowingly challenge each other’s position.
  543. 543. Threat of Substitute Products or Services
  544. 544. Substitute product: a product that appears to be different but can satisfy the same need as another product.
  545. 545. Ex: e-mail as a substitute for the fax.
  546. 546. Bargaining Power of Buyers
  547. 547. Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other.
  548. 548. Buyers hold powerful in the following factors:
  549. 549. A buyer purchases a large proportion of the seller’s product or service
  550. 550. A buyer has the potential to integrate backward by producing the product itself (ex: newspaper chain could make its own paper)
  551. 551. Alternative suppliers are plentiful bc the product is standard or undifferentiated
  552. 552. Changing suppliers costs very little (ex: office supplies are easy to find)
  553. 553. The purchased product represents a high % of a buyer’s costs, thus providing an incentive to shop around for a lower price (ex: gasoline purchased for resale by convenience stores makes up half their total costs)
  554. 554. A buyer earns low profits and is thus very sensitive to costs and service differences (ex: grocery stores have very small margins).
  555. 555. A buyer earns low profits and is thus very sensitive to costs and service differences for (ex: grocery stores have small margins)
  556. 556. The purchased product is unimportant to the final quality or price of a buyer’s products or services and thus can be easily substituted w/o affecting the final product adversely (ex: electric wire bought for use in lamps)
  557. 557. Bargaining Power of Suppliers
  558. 558. Suppliers can affect an industry through their ability to raise prices/reduce the quality of purchased goods and services.
  559. 559. Suppliers hold powerful in the following factors:
  560. 560. The supplier industry is dominated by a few companies, but it sells o many (ex: the petroleum industry)
  561. 561. Its product/service is unique and/or it has built up switching costs (ex: word processing software)
  562. 562. Substitutes are not readily available (ex: electricity)
  563. 563. Suppliers are able to integrate forward and complete directly w/ their present customers (ex: microprocessor producer such as Intel can make PCs)
  564. 564. A purchasing industry buys only a small portion of the supplier group’s goods and services and is thus unimportant to the supplier (ex: sales of lawn mower tires are less important to the tire industry than are sales of auto tires)
  565. 565. Relative Power of Other Stakeholders
  566. 566. Sixth force – includes a variety of stakeholders groups from the task environment.
  567. 567. Includes: gvmts, local communities, creditors, trade associations, special-interest groups, unions.
  568. 568. Complementor: a company or an industry whose product works well w/ a firm’s product and w/o which the product would lose much of its value. </li></ul>210894786435<br /><ul><li>Industry Evolution
  569. 569. Industry life cycle useful for explaining and protecting trends among the six forces that drive industry competition.
  570. 570. Fragmented Industry: where no firm has large market share, and each firm serves only a small piece of the total market in competition w/ others.
  571. 571. Competitors try to differentiate their products from one another’s in order to avoid the fierce competition common to a maturing industry.
  572. 572. Consolidated Industry: dominated by a few large firms, each of which struggles to differentiate its products from those of the competition.
  573. 573. Firms begin converting their facilities to alternate uses or sell them to other firms when an industry moves through maturity toward possible decline.
  574. 574. Categorizing International Industries
  575. 575. Multidomestic Industries: an industry in which companies tailor their products to the specific needs of consumers in a particular country.
  576. 576. Activities in a subsidiary of a multinational corporation (MNC) in this type of industry are essentially independent of the activities of the MNC’s subsidiaries in other countries.
  577. 577. W/in each country, a MNC has its own manufacturing facility to produce goods for sale w/in that country, thus they will be able to tailor its products/service to the very specific needs of consumers.
  578. 578. Continuum of International Industries:
  579. 579. Multidomestic Global
  580. 580. Industry in which companies manufacture and sell the same products, w/ only minor adjustments made for individual countries around the world.AutomobilesTiresTelevision SetsIndustry in which companies tailor their products to the specific needs of consumers in a particular country.RetailingInsurance Banking
  581. 581. Global Industries: An industry in which a company manufactures and sells the same products, w/ only minor adjustments for individual countries around the world.
  582. 582. Operates worldwide
  583. 583. Activities for MNCs in one country are significantly affected by its activities in other countries.
  584. 584. MNCs in global industries product products or services in various locations throughout the world and sell them, making only minor adjustments for specific country requirements.
  585. 585. Factors determining whether an industry will be multidomestic/global:
  586. 586. Pressure for coordination w/in the MNCs operating in that industry
  587. 587. Pressure for local responsiveness on the part of individual country markets.
  588. 588. Strong Pressure for di./weak pressure for dii. = global
  589. 589. Weak pressure for di./strong pressure for dii. = multinational
  590. 590. Regional Industries: an industry in which MNCs primarily coordinate their activities w/in specific geographic areas. (btwn characteristics of both global & multidomestic industry)
  591. 591. “Think globally but act locally” – tension btwn the pressure for coordination and the pressure for local responsiveness.
  592. 592. International Risk Assessment
  593. 593. Some firms develop elaborate info networks and computerized systems to evaluate and rank investment risks.
  594. 594. A firm must develop its own method of assessing risk; it must decide on its most important risk factors and then assign weights to each.
  595. 595. Strategic Groups
  596. 596. Strategic group: a set of business units or firms that “pursue similar strategies w/ similar resources.”
  597. 597. Categorizing firms in any one industry into a set of strategic groups is very useful as a way of better understanding the competitive environment.
  598. 598. Strategic groups in a particular industry can be mapped by plotting the market positions of industry competitors on a two-dimensional graph, using two strategic variables as the vertical and horizontal axes.
  599. 599. Select two broad characteristics, such as price and menu that differentiate the companies in an industry from one another.
  600. 600. Plot the firms, using these two characteristics as the dimensions.
  601. 601. Draw a circle around those companies that are closest to one another as one strategic group, varying the size of the circle in proportion to the group’s share of total industry sales.
  602. 602. Strategic Types
  603. 603. Strategic Type: a category of firms based on a common strategic orientation and a combination of structure, culture, and processes consistent w/ that strategy.
  604. 604. General Strategy type characteristics:
  605. 605. Defenders are companies w/ a limited product line that focus on improving the efficiency of their existing operations. This cost orientation makes them unlikely to innovate in new areas.
  606. 606. Prospectors are companies w/ fairly broad product lines that focus on product innovation and market opportunities. This sales orientation makes them somewhat inefficient.
  607. 607. Analyzers are corporations that operate in at least two different product-market areas, one stable and one variable. In the stable areas, efficiency is emphasized. In the variable areas, innovation is emphasized.
  608. 608. Reactors are corporations that lack a consistent strategy-structure-culture relationship. Their (often ineffective) responses to environmental pressures tend to be piecemeal strategic changes.
  609. 609. Hypercompetition
  610. 610. Hypercompetition: an industry situation in which the frequency, boldness, and aggressiveness of dynamic movement by the players accelerates to create a condition of constant disequilibrium and change.
  611. 611. In hypercompetitive industries, competitive advantage comes from a up-to-date knowledge of environmental trends and competitive activity couples w/ a willingness to risk a current advantage for a possible new advantage/
  612. 612. Companies must be willing to cannibalize (that is, replace popular products before competitors do so) in order to sustain their competitive advantage.
  613. 613. Using Key Success Factors to Create an Industry Matrix
  614. 614. Key success factors: variables that can significantly affect the overall competitive positions of companies w/in any particular industry.
  615. 615. Varies from industry to industry
  616. 616. Usually determined by the economic & technological characteristics of the industry and by the competitive weapons on which the firms in the industry have built their strategies.
  617. 617. Industry matrix: summarized the key success factors w/in a particular industry.
  618. 618. gives weight for each factor based on how important that factor is for success w/in the industry.
  619. 619. Specifies how well various competitors in the industry are responding to each factor.
  620. 620. Generating an industry matrix steps:
  621. 621. Column 1 (Key Success Factors), list the 8 to 10 factors that appear to determine success in the industry.
  622. 622. Column 2 (Weight), assign a weight to each factor, from 1.0 (Most Important) to 0.0 (Not Important) based on that factor’s probable impact on the overall industry’s current and future success. (All weights must to 1.0 regardless of the # of strategic factors)
  623. 623. Column 3 (Company A Rating), examine a particular company w/in the industry. Assign a rating to each factor from 5 (Outstanding) to 1 (Poor) based on Company A’s response to that particular factor. Each rating is a judgment regarding how well that company is specifically dealing w// each key success factor.
  624. 624. Column 4 (Company A Weighted Score), multiply the weigh in Column 2 for each factor by its rating in Column 3 to obtain the factor’s weighted score for Company A.
  625. 625. Column 5 (Company B Rating) examine a 2nd company w/in the industry. Assign a rating to each key success factor from 5.0 (Outstanding) to 1.0 (Poor) based on Company’s B current response to each particular factor.
  626. 626. Colum 6 (Company B Weighted Score) multiply the weight in Column 2 for each factor times its rating in Column 5 to obtain that factor’s weighted score for Company B.
  627. 627. Finally, add the weighted scores for all the factors in Columns 4 and 6 to determine how the total weighted scores for companies A and B. The total weighted score indicates how well each company is responding to current and expected key success factors in the industry’s environment. Check to ensure that the total weighted score truly reflects the company’s current performance in terms of profitability and market share. (An average company should have a total weighted score of 3)</li></ul>4.3 Competitive Intelligence<br /><ul><li>Sources of Competitive Intelligence
  628. 628. A study of product innovation found that 77% of all product innovations in scientific instruments and 67% in semiconductors and printed circuit boards were initiated by the customer in the form of inquiries and complaints.
  629. 629. Competitive Intelligence (business intelligence): a formal program of gathering info on a company’s competitors.
  630. 630. Business intelligence is one of the fastest growing fields of SM.
  631. 631. Most corps. Use outside orgs. To provide them w/ environmental data.
  632. 632. Many business corps. Have established their own in-house libraries and computerized info systems to deal w/ the growing mass of available info.
  633. 633. Internet
  634. 634. Provides the quickest mean to obtain data
  635. 635. Changed the way strategists engage in environmental scanning.
  636. 636. Is also littered with misinformation/utter nonsense
  637. 637. When companies use current/former competitors’ employees and private contractors, they attempt to steal trade secrets, technology , business plans, and pricing strategies.
  638. 638. Economic Espionage Act in 1996: United States passed this law that makes it illegal (w/ fines up to $5 M and 10 yrs in jail) to steal any material that a business has taken “reasonable efforts” to keep secret and that derives its value from not being known.
  639. 639. Society of Competitive Intelligence (www.scip.org) urges strategists to stay w/in the law and to act ethically when searching for info.
  640. 640. Monitoring Competitors for Strategic Planning
  641. 641. Competitors: organizations that offer same, similar, or substitutable products or services in the business area in which a particular company operates.
  642. 642. To understand a competitor, it is important to answer the following questions:
  643. 643. Why do your competitors exist? Do they exist to make profits or just support another unit?
  644. 644. Where do they add customer value – higher quality, lower price, excellent credit terms, or better service?
  645. 645. Which of your customers are the competitors most interested in? Are they cherry-picking your best customers, picking the ones you don’t want, or going after all of them?
  646. 646. What is their cost base and liquidity? How much cash do they have? How do they get their supplies?
  647. 647. Are they less exposed w/ their suppliers than your firm? Are their suppliers better than yours?
  648. 648. What do they intend to do in the future?? Do they have a strategic plan to target your market segments? How committed are they to growth? Are there any succession issues?
  649. 649. How will their activity affect your strategies? Should you adjust your plans and operations?
  650. 650. How much better than your competitor do you need to be in order to win customers? Do either of you have a competitive advantage in the marketplace?
  651. 651. Will either competitors or new ways of doing things right appear over the next few years? Who is a potential new entrant?
  652. 652. If you were a customer, would you choose your product over those offered by your competitors? What irritates your current customers? What competitors solve these particular customer complaints?</li></ul>4.4 Forecasting<br /><ul><li>Danger of Assumptions
  653. 653. Faulty underlying assumptions are the most frequent cause of forecasting errors.
  654. 654. Many mgrs. Who formulate & implement strategic plans rarely consider that their success is based on a series of basic assumptions.
  655. 655. Many strategic plans are simply based on projections of the current situations.
  656. 656. Useful Forecasting Techniques
  657. 657. Forecasts do not tell the future; they merely state what can be, not what will be.
  658. 658. Extrapolation – the extension of present trends into the future. It rests on the assumption that the world is reasonably consistent and changes slowly in the short run.
  659. 659. Brainstorming – a non-quantitative approach that requires simply the presence of people w/ some knowledge of the situation to be predicted.
  660. 660. Expert opinion – non-quantitative data technique in which experts in a particular area attempt to forecast likely developments. Based on the ability of a knowledgeable person (s) to construct probable future developments based on the interaction of key variables.
  661. 661. Delphi Technique – separated experts independently assess the likelihoods of specified events. These assessments are combined and sent back to each expert for fine-tuning until agreement is reached. These assessments are most useful when shaped into several possible scenarios that allow decision makers to more fully understand their implications.
  662. 662. Statistical Modeling – a quantitative technique that attempts to discover causal or at least explanatory facts that link two or more time series together.
  663. 663. Prediction markets are enabled by easy access to the internet. Small-scale electronic markets, frequently open to any employee, that tie payoffs to measurable future events, such as sales data for a computer workstation, the number of bugs in an application, or a product usage patterns. Yields prices on prediction contracts – prices that can be interpreted as market aggregated forecasts.
  664. 664. Other forecasting techniques:
  665. 665. Cross-impact analysis (CIA)
  666. 666. Trend-impact analysis (TIA)
  667. 667. Scenario writing – most widely used (after extrapolation).
  668. 668. Scenarios – focused descriptions of different likely futures presented in a narrative fashion.
  669. 669. Industry scenario: forecasted description of particular industry’s likely future. Process by analyzing the probable impact of future societal forces on key groups:
  670. 670. Examine possible shifts in the natural environment and in societal variables globally.
  671. 671. Identify uncertainties in each of the six forces of the task environment (that is, potential entrants, competitors, likely substitutes, buyers, suppliers, likely subs, buyers, suppliers, and other key stakeholders)
  672. 672. Make a range of possible assumptions about future trends
  673. 673. Combine assumptions abt. Individual trends into internally consistent scenarios.
  674. 674. Analyze the industry situation that would prevail under each scenario.
  675. 675. Determine the sources of competitive advantage under each scenario.
  676. 676. Predict competitors’ behavior under each scenario.
  677. 677. Select the scenarios that are either most likely to occur or most likely to have a strong impact on the future of the company. Use these scenarios as assumption in strategy formulation. </li></ul>4.5 The Strategic Audit: A Checklist for Environmental Scanning<br /> N/A<br />4.6 Synthesis of External Factors – EFAS <br />EFAS External Factor Analysis Table: a way to organize the external factors into the generally accepted categories of opportunities and threats as well as to analyze how well particular company’s mgmt. (rating) is responding to these specific factors in light of the perceived importance (weight)of these factors to the company. <br />Chapter 5 : Internal Scanning: Organizational Analysis<br />5.1 A Resource-Based Approach to Organizational Analysis<br /><ul><li>Core & Distinctive Competencies
  678. 678. Organizational Analysis: internal scanning that is concerned with identifying and developing an organization’s resources and competencies.
  679. 679. Resources: an org’s assets and are thus the basic building blocks of the organization. Includes:
  680. 680. tangible assets (plant, equipment, finances, and location)
  681. 681. Human assets (# of employees, their skills, and motivation)
  682. 682. Intangible assets (patents and copyrights, culture, and reputation)
  683. 683. Capabilities: refer to a corp’s ability to exploit its resources. Manage the interaction among resources to turn inputs outputs.
  684. 684. Dynamic capabilities – when hr, marketing, and manufacturing capabilities are constantly being changed and reconfigured to make them more adaptive to an uncertain environment.
  685. 685. Competency: a cross-functional integration and coordination of corporation may be the consequence of integrating management of info. Systems
  686. 686. Core Competency: a collection of competencies that crosses divisional boundaries, is widespread within the corporation, and is something that the corp. can do exceedingly well.
  687. 687. Core rigidity or deficiency: a strength that over time matures and may become a weak-valuable resource – it does not “wear out” with use.
  688. 688. Distinctive Competencies: when core competencies are superior to those of the competition.
  689. 689. VRIO framework: proposes four questions to evaluate a firm’s competencies:
  690. 690. Value: Does it provide customer value and competitive advantage?
  691. 691. Rareness: Do no other competitors possess it?
  692. 692. Imitability: Is it costly for others to imitate?
  693. 693. Organization: Is the firm organized to exploit the resource?</li></ul>If this answer is yes for a particular competency, it is considered a strength. <br /><ul><li>Important to evaluate the importance of a company’s resources, capabilities, and competencies to ascertain whether they are internal strategic factors – that is, particular strengths and weaknesses that will help determine the future of the company. Can be done by measuring:
  694. 694. The company’s past performance
  695. 695. The company’s key competitors
  696. 696. The industry as a whole.
  697. 697. Using Resources to Gain Competitive Advantage
  698. 698. Five-step, resource-based approach to strategy analysis to determine its resource endowment:
  699. 699. Identify and classify the firm’s resources in terms of strengths and weaknesses
  700. 700. Combine the firm’s strengths into specific capabilities and core competencies
  701. 701. Appraise the profit potential of these capabilities and competencies in terms of their potential for sustainable competitive advantage and the ability to harvest the profits resulting from their use.
  702. 702. Select the strategy that best exploits the firm’s capabilities and competencies relative to external opportunities.
  703. 703. Identify resource gaps and invest in upgrading weaknesses.
  704. 704. Gain access to distinctive competencies:
  705. 705. Asset endowment (key patent) coming from founding of the company.
  706. 706. Someone else.
  707. 707. Shared with another business unit or alliance partner.
  708. 708. Carefully built and accumulated over time within the company.
  709. 709. The desire to build/upgrade a core competency is one reason entrepreneurial and other fast-growing firms often tend to locate close to their competitors.
  710. 710. Clusters –geographic concentrations of interconnected companies and industries.
  711. 711. Porter says that clusters provide access to employees, suppliers, specialized info, and complementary products. – being close to a competitor makes it easier to measure and compare performance against rivals.
  712. 712. Determining the Sustainability of An advantage
  713. 713. Durability: rate at which a firm’s underlying resources, capabilities, or core competencies depreciate or become obsolete.
  714. 714. Imitability: the rate at which a firm’s underlying resources, capabilities, or core competencies can be duplicated by others.
  715. 715. Reverse engineering – involves taking apart a competitor’s product in order to find out how it works.
  716. 716. A core competency can be easily imitated to the extent that it is transparent, transferable, and replicable:
  717. 717. Transparency: the speed with which other firms can understand the relationship of resources and capabilities supporting a successful firm’s strategy.
  718. 718. Transferability: the ability of competitors to gather the resources and capabilities necessary to support a competitive challenge.
  719. 719. Replicability: the ability of competitors to use duplicated resources and capabilities to imitate the other firm’s success.
  720. 720. Explicit Knowledge: knowledge that can be easily articulated and communicated. – knowledge that competitive intelligence activities can quickly identify and communicate.
  721. 721. Tacit Knowledge: knowledge that is not easily communicated because it is deeply rooted in employee experience or in a corporation’s culture. – more valuable and likely to lead to a sustainable competitive adv. – harder for competitors to imitate.
  722. 722. Continuum of Sustainability: a representation that indicates how durable and imitable an organization’s resources and capabilities are.
  723. 723. Level of Resource Sustainability</li></ul>High Low<br />(Hard to Imitate) (Easy to Imitate)<br /><ul><li>Slow-Cycle ResourceStrongly shieldedPatents, brand nameGilette: Sensor Razor
  724. 724. Standard-Cycle ResourceStandardized mass productionEconomies of ScaleComplicated processesChrysler: Minivan
  725. 725. Fast-Cycle ResourcesEasily DuplicatedIdea DrivenSony: Walkman</li></ul>5.2 Business Models<br /><ul><li>Business Model – a company’s method for making money in the current business environment. Includes the key structural and operational characteristics of a firm – how it earns revenue and makes a profit. Composed of five (5) elements:
  726. 726. Who it serves
  727. 727. What it provides
  728. 728. How it makes it money
  729. 729. How it differentiates and sustains competitive advantage
  730. 730. How it provides its product/service
  731. 731. Possible Business Models
  732. 732. Customer Solutions Model: IBM uses this model to make money not by selling IBM products, but by selling its expertise to improve its customers’ operations. – A consulting model.
  733. 733. Profit Pyramid Model: Key is to get customers to buy in at the low-priced, low-margin entry point and move them up to high-priced, high-margin products where the company makes it money.
  734. 734. Multicomponent system/installed base model: Gillette invented this classic model to sell razors at break-even pricing in order to make money on higher-margin razor blades. HP does the same w/ printers and printer cartridges/ The product is thus a system, not just one product, w/ one component providing most of the profits.
  735. 735. Advertising model: This model offers its basic product free in order to make money on advertising. Originating in the newspaper industry, this model is used heavily in commercial radio and television.
  736. 736. Switchboard Model: The firm acts as an intermediary to connect multiple sellers to multiple buyers. Financial planners juggle a wide range of products for sale to multiple customers w/ different needs. This model has been successfully used by ebay.com/Amazon.com
  737. 737. Time Model: Product R&D and speed are the keys to success in the time model. Being the first to market w/ a new innovation allows a pioneer like Sony to earn high margins. Once others enter the market w/ process R&D and lower margins, it’s time to move on.
  738. 738. Efficiency Model: A company waits until a product becomes standardized and then enters the market w/ a low-priced, low-margin product that appeals to the mass market (Dell, Walmart)
  739. 739. Blockbuster Model: in some industries, such as pharmaceuticals and motion picture studios, profitability is driven by a few key products. The focus is on high investment in a few produces with high potential payoffs – especially if they can be protected by patents.
  740. 740. Profit Multiplier Model: the idea of this model is to dvlp. A concept that may or may not make money on its own, but through synergy, can spin off many profitable products (Walt Disney: theme parks, merchandise, licensing opportunities)
  741. 741. Entrepreneurial Model: a company offers specialized services/products to market niches that are too small to be worthwhile to large competitors but have the potential to grow quickly. Has been often used by small high-tech firms that develop innovative prototypes in order to sell off the companies (w/o ever selling a product) to Microsoft/DuPont.
  742. 742. De Facto industry Standard Model: a company offers products free or at a very low price in order to saturate the market and become the industry standard. Once users are locked in, the company offers higher-margin products using this standard. (Microsoft pkg. I.E free w/ its Windows software in order to market share from Netscape’s Web Browser)</li></ul>5.3 Value-Chain Analysis<br /><ul><li>Industry Value-Chain Analysis
  743. 743. Value Chain: linked set of value-creating activities that begin w/ basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or service, and ending w/ distributors getting the final goods into the hands of the ultimate consumer.
  744. 744. Industry value-chain for most industries can be split into two segments:
  745. 745. Upstream
  746. 746. Downstream
  747. 747. An industry can be analyzed in terms of the profit margin available at any point along the value chain.
  748. 748. In analyzing the complete value chain of a product, note that even if a firm operates up and down the entire industry chain, it usually has an areas of expertise where its primary activities lie.
  749. 749. Center of gravity – part of the chain that is most important to the company & the point where its greatest expertise and capabilities lie – its core competencies.
  750. 750. Usually the pt. at which the company started.
  751. 751. Vertical Integ