Exam 2 - Hopkins PDF

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MGMT 3000: Exam 2 Study Guide Key Management Tool Box: “One is the magic number”: Mission, Core Values, Vision Purpose/Mission: Who we are? What we do? Why we are here? Facebook “to give people the power to share and make the world more open and connected Microsoft: “Put a computer on every desk and in every home”  “To create a family of devices and services for individuals and businesses that empower people around the globe on the go, for the most” Vision: Our aspiration; what we want to be?; a desired future state Amazon: “Our vision is to be the Earth’s most customer-centric company” Netflix: Reed Hastings: becoming the best global entertainment distribution service; licensing entertainment content around the world; creating markets that are accessible to film makers; helping content creators around the world to find a global audience Core Values: what we believe in? How we “do business” here…how we behave; Values are the guide rails for decision making Netflix: judgement, productivity, creativity… Strategic goals: what you want to achieve -Measurable: provide yardstick or standard to judge performance -Address crucial issues: a limited number of key goals helps maintain focus -Challenging but realistic: provide employees with incentive for improving -Specifies a time period: motivates/injects sense of urgency into goal attainment  One is the magic number to get everyone on the same (one) page, and to maximize business results, you need: One: common mission, common vision, set of common values, set of common goals, team committed to achieving results… if you strive to be the number one. “Knowledge is Power”: Know you enemy and know yourself “How will you compete” “Where will you compete” “Just because you can, doesn’t mean you should” “Don’t confuse management with leadership” “Leadership matters!” “Great leaders SERVE” “Adapt structure to strategy” “Know yourself; Understand others” “Motivation is personal, Empower people” “SKA: Skills, Knowledge, Attitude” but the most important is ATTITUDE “Get the right people, in the right jobs, at the right time” -CEO of Netflix: Richard Hastings

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What is an organization’s Mission and Vision and how do they differ? -Purpose: Who we are? What we do? Why we are here? Facebook “to give people the power to share and make the world more open and connected Microsoft: “Put a computer on every desk and in every home”  “To create a family of devices and services for individuals and businesses that empower people around the globe on the go, for the most” -Vision: Our aspiration; what we want to be?; a desired future state Amazon: “Our vision is to be the Earth’s most customer-centric company” Netflix: Reed Hastings: becoming the best global entertainment distribution service; licensing entertainment content around the world; creating markets that are accessible to film makers; helping content creators around the world to find a global audience What is meant by an organization’s Core Values? -What we believe in? How we “do business” here…how we behave; Values are the guide rails for decision making What is meant by an organization’s Strategic Goals? Strategic goals: what you want to achieve -Measurable: provide yardstick or standard to judge performance -Address crucial issues: a limited number of key goals helps maintain focus -Challenging but realistic: provide employees with incentive for improving -Specifies a time period: motivates/injects sense of urgency into goal attainment Why is ONE the magic number? -One is the magic number to get everyone on the same (one) page, and to maximize business results, you need: -One: common mission, common vision, set of common values, set of common goals, team committed to achieving results… if you strive to be the number one. What are the essential functions of decision making and the planning process? -The environmental context -The organization’s mission: purpose, premises, values, direction -Goals: strategic goals, tactical goals, operational goals (2-3 years into a job) -Plans: strategic plans, tactical plans, operational plans What is meant by an organization’s mission versus vision? -Purpose/Mission: Who we are? What we do? Why we are here? -Vision: Our aspiration; what we want to be?; a desired future state

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What are organizational goals, who sets them, and how are they aligned? Barriers to goal setting? -Organizational goal: 1. Provide a unified direction 2. Goal-setting enables effective planning (plan: how will you accomplish your goals?” 3. Specific and challenging goals are motivators 4. Goals are the means for evaluation and control -Goals vary by: 1. Organizational Level a. Strategic goals: Board of directors, CEO b. Tactical goals: Senior Management c. Operational goals: Middle and Lower Management 2. Functional Areas: a. Operations, quality b. Sales and marketing c. Finance, Accounting, and Risk Management d. IT, human resources 3. Time frame: long-term, intermediate-term, and short-term -Goal setting process: for employee engagement and participation -Strength: -Improved motivation -Enhanced communication -Allows for objective performance appraisals -Identifies managerial talent -Facilitates control -Weaknesses (failure): -Poor implementation -Lack of top management -Assigned goals lead to resentment and lack of commitment -Major barriers: inappropriate goals, improper reward system, dynamic and complex environment, reluctance to establish goals, resistance to change, constraints -Overcoming the barriers: understanding the purposes of goals and planning, communication and participation, consistency, revision, and updating, effective reward system What are the different kinds of organizational plans? -Strategic plans: shows resource allocation, priorities, and action steps necessary to reach strategic goals -Tactical plans: actions aimed at achieving tactical goals -Operational plans: actions aimed at achieving operational goals -Contingency planning: the determination of alternative courses of action to be taken if an intended plan is unexpected disrupted or rendered inappropriate -Crisis management: the set of procedures the organization uses in the event of a disaster or other unexpected calamity 3

How are goals and planning aligned with individual performance? -Managers would have their own individual performance objectives and goals tied to executing and results achievement at their level of accountability -Strategic goals – Strategic plans: CEO’s individual performance objectives and goals -Tactical goals – Tactical plans: Senior managers individual performance objectives and goals -Operational goals – Operational plans: Middle and low level managers individual performance and objectives and goals What is meant by strategic analysis? -External and Internal Analysis using SWOT, VRIO, Porters 5 Forces, and PESTEL analyses; answer the following questions: 1. What are our distinctive competencies? 2. What are the external factors that (1) impact our business, and (2) affect the attractiveness of our industry? 3. Based on the above, what are competitive advantages and disadvantages? What is meant by SWOT? -Looking at business’s 1. Strengths [internal analysis] 2. Weaknesses [internal analysis] 3. Opportunities [external analysis] 4. Threats [external analysis] What is VRIO? -Tool for internal analysis: determine the impact on competitive advantage of a business’s resources -Are the business resources: Valuable? Rare? Imitate (costly for someone to imitate)? Organized to capture value? What is Michael Porter’s 5 Forces? -Tool for external analysis: These 5 forces determine the profit potential of an industry and shape a firm’s competitive strategy 1. Bargaining Power of Supplier 2. Bargaining Power of Buyers 3. Threat of Substitute Products or Services 4. Threat of New Entrants 5. Rivalry Among Existing Competition What is the difference between a Business Level and Corporate level Strategy? -Business-level strategy: The set of strategic alternatives from which an organization chooses as it conducts business in a particular industry or market; multi-business within an a corporation; “How you will compete” Competitive advantage How do we compete? 4

-Corporate-level strategy: The set of strategic alternatives from which an organization chooses as it manages its operations simultaneously across several markets; “Where you will compete” “What businesses are you going to be in?” Industry attractiveness What industries should we be in? Allocation of resources among business What are Porter’s Generic Business Level Strategies? 1. Differentiation: distinguish products or services (Rolex-watches, Godiva-chocolate, Mercedes Benz-automobile 2. Overall cost leadership: reduce manufacturing and other costs (Timex-watches, Hersheychocolate, Kia-automobile 3. Focus: Concentrate on specific regional market, product market, or group of buyers (Tag Heuer-watches, Vosges-chocolate) What are the 4 Myles and Snow Topology business level strategy types? 1. Prospector: innovative and growth oriented searches for new markets and new growth opportunities, encourages risk taking (Amazon, 3M…) 2. Defender: Protect current markets, maintains stable growth, serves current customers (BIC, eBay) 3. Analyzer: Maintains current markets and current customer satisfaction with moderate emphasis on innovation (DuPont, IBM) 4. Reactor: No clear strategy, reacts to changes in the environment, drifts with events (Kmart, International Harvester) What is meant by Product Life Cycle business level strategies? -Different stages of product focus on sales volume over time 1. Introduction: Demand may be very high. Focus on increasing production, keeping quality high, and managing inventories and cash flow 2. Growth: Sales growth, focus on quality and delivery and begin to differentiate 3. Maturity: Demand begins to slow, focus on low costs and search for new products 4. Decline: Total sales decline, firms may close, or differentiate and cut costs What are the types of Corporate Level Strategies? -Corporations can be composed of multiple individual businesses, many times called Strategic Business Units (BSUs) -Type of corporate strategies: 1. Diversification strategy: “do we need a different portfolio of businesses?”; related and unrelated SBUs 2. Integration strategy: horizontal and vertical integration How do corporations evaluate their portfolio of Strategic Business Units (SBUs) using the BCG Matrix? What does it tell you? 5

-To be sure they are competing in the best industries or markets -Stars: high market growth rate, high market share -Question mark: high market growth rate, low market share -Cash cows: low market growth rate, high market share -Dogs: low market growth rate, low market share What are the global strategy alternatives? -Home country replication strategy: A company uses the core competency it developed at home as it main competitive weapon. LOW COST vs DIFFERENTIATION -Multi-domestic strategy: A company manages itself a collection of multiple county subsidiaries, each with a domestic market -Global strategy: a company views the world as a single marketplace, standardizing products to address the needs of customers worldwide (sport equipment, software, commodity products) What are the sources of competitive advantage that global companies and their strategies may exploit? 3 Sources of competitive advantage -Global Efficiencies: -Location efficiencies: allow firms to locate wherever they can obtain cost advantage -Economies of scale: lowers the per unit cost of production due to large quantities -Economies of scope: lowers cost per unit by sharing expenses across multiple product lines -Multi-market flexibility: gives firm the ability to respond to change in one region by making changes in other regions -Worldwide learning scope: adopting best practices from wherever they originate around the globe What is the purpose of Strategic Analysis? What are its various components? -An internal and external analysis that answers the questions: 1. What is our distinctive competencies? 2. What are the external factors that: Impact our business, and Affect the attractiveness of our industry 3. Based on the above, what are competitive advantages and disadvantages? -External Analysis Tools: -PESTEL: wider socioeconomic/macro-environment that may affect company and its industry -SWOT: Opportunities and threats -Porter’s 5 Forces: Industry components (competitive structure of industry) -Macro Markets in which you compete: (1) consumer markets and trends, (2) industrial markets and trends of major players, (3) industry life cycle -Internal Analysis Tools: -SWOT: Strengths and weaknesses -VRIO

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What is meant by a PESTEL Analysis? How does it help you understand areas that might impact your business? -PESTEL: Politics, Economy, Social, Technology, Environment, and Legal  create opportunities and threats -Ex: Black Berry (1) lacked awareness of socio-cultural factors [people began to use their own phones at work for communication; IT departments had to incorporate other devices] and (2) lacked awareness of technological factors [Apple’s iPhone release in 2007 included a camera, touch-screen with Wifi; Was dismissed as a toy with low security features] What is a SWOT analysis? How does a SWOT analysis help you understand your business? Which are the external and internal analysis parts? -A tool that allows managers to take a snapshot of their firm’s internal strengths and weaknesses as well as the opportunities and threats that are evident in the external environment -Strengths: manufacturing efficiency? Experienced workforce? Market share? Financial strength? Product/service reputation? -Weaknesses: outdate plan/equipment? Inadequate R&D? Obsolete technology? Ineffective management? Lack of communication/teamwork? -Opportunities: strong economy? Weak market rivals? Emerging technologies? Possible new markets? Strategic alliance?  conditions in the environment a company can take advantage of to become more profitable -Threats: new competitors? Shortage of resources? New regulations? Substitute products? New technology?  conditions in the environment that endangers the profitability of the business What are each of Porter’s 5 Forces? How are they used to determine the attractiveness of an industry? What does a strong versus a weak force mean? How do the Forces impact the risk of a price war? -Porter’s 5 Forces determine the profit potential of an industry “industry attractiveness”, and shape a firm’s competitive strategy.  The stronger each of these five forces is the more limited is the ability of established companies to raises prices and earn greater profits -Weak competitive force: viewed as an opportunity as it allows company to earn greater profits (less business rivals) -Strong competitive force: viewed as a threat as it depresses industry profits -The five forces are: 1. Threats of new entrants and barriers to entry: The risk that potential competitors will enter an industry a. If the threat is high, then it lowers industry profit potential: Incumbents spend more to satisfy existing customers b. If the threat is low, then it increases industry profit potential due largely to higher entry barriers (obstacles blocking other from entering; a significant predictor of industry profit potential) i. Typical barriers to entry: Economies of scale, customer switching costs (time, energy spent), capital requirements (capital intensity), government policy, credible threat of retaliation, brand loyalty, and technology/patents

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2. Bargaining Power of Buyers: customers put pressure on demanding (1) a lower price or (2) higher product quality a. High when: (1) there are a few buyers and each buyer purchases large quantities; (2) the industry’s products are standardized or undifferentiated commodities; (3) buyers face low or no switching costs (no long-term consequences for switching); (4) buyers can backwardly integrate into the industry (easier to buy cheaper stuff from manufacturer and wholesaler) 3. Bargaining Power of Suppliers: reflects the pressures that industry suppliers can exert on an industry’s profit potential  higher supplier bargaining power lowers industry profit potential if suppliers demand higher prices, and or suppliers reduce quality a. High when: (1) only a few suppliers industry; (2) suppliers not dependent on industry for majority of revenue; (3) high customer switch cost; (4) suppliers offer differentiated products (higher value); (5) no substitutes for supplier products; (6) suppliers can forward-integrate into buyer’s industry 4. Threat of Substitutes: products or services outside an industry can meet the needs of current customers; substitutes limit an industry’s profit potential by placing a price ceiling (Ex: videoconferencing vs business travel) a. High when: (1) the substitute offers an attractive price-performance trade-off; (2) the buyer’s cost of switching to substitute is low 5. Rivalry Among Competitors: the intensity with which companies in the same industry jockey for market share and profitability; the other 4 forces put pressure on rivalry a. High when: (1) Industry product/services lack differentiation or switching costs; (2) fixed costs are high; (3) overcapacity in the industry; (4) industry product is perishable or highly cyclical; (5) numerous rival competitors -The risk of a price war is greatest when: (1) demand volume is falling [less demand smaller pie]; (2) exit barriers are high [“you have to stay and fight”]; (3) productive capacity is excessive -Lowest breakeven wins the price war What is meant by a Resource-Based view of a company? What are examples of tangible and intangible resources? What is a VRIO analysis and how is it used? How can resources create competitive advantage? - A resource-based view of the firm: a concept that a firm can develop a competitive advantage through the collection and harvesting of resources [manager’s responsible for create/acquire/allocate resources] -Tangible  visible, physical attributes: labor (talent), capital, land, buildings, plant, equipment, supplies -Intangible  invisible, no physical attributes: culture, knowledge, brand equity, reputation, intellectual property -VRIO internal analysis determines the impact on competitive advantage of a business’s resources -Valuable: if (1) it enables the firm to exploit an opportunity; (2) it enables the firm to offset a threat -Rare: if only one or a few firms possess it 8

-Costly to Imitate: if firms that do not possess the resource are unable to develop or buy the resource at a reasonable price. -Organized to Capture Value: if (1) it has and effective organizational structure, (2) it has coordinating systems

What is the impact of new ventures (small businesses) in the US? What is the role of start-up new ventures in the US economy? According to your instructor, what is meant by the term entrepreneurship? Why should new venture develop be a phase process? What is the value of a Business Plan? What are the various structures in which a new venture can start up? What are the various sources of funding a new venture start-up and what is the effect on ownership equity? What is Business Level strategy? -Answers: “HOW will we compete to gain and sustain competitive advantage?” -Addresses: “Who”: which customer segments will we serve? “What”: customer needs, wishes, and desires will we satisfy? “How”: will we satisfy our customer’s needs? What is meant by the term “business model”? -It’s how you make money; where’s the revenue come from! -Examples: subscriptions, razor and razor blades, consumption/pay as you go, free + premium, wholesale, bundling What are the characteristics of a Low Cost strategy? What are the cost drivers? -A strategy that aim to provide a product or service at as low a price as possible to a broad audience; reduced the firm’s cost below its competitors  lowered breakeven; offer adequate value 9

-Resources focused on: (1) reducing cost [to manufacture a product or offer a service]; (2) reducing prices for customers; (3) optimizing the value chain -Characteristics of Cost Leader Strategy: (1) little focus on innovation; (2) appeal to “average” or typical customer; (3) high focus on efficiency and lower cos...