Management EXAM 2 - Test 4 study guide PDF

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MANAGEMENT EXAM 2

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Chapter 6: Strategic Management 6.1 What is Effective Strategy Strategic Positioning and Its Principles - Strategic Positioning: attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company o Performing different activities from rivals or performing similar activities in different ways 1. Strategy is the Creation of a Unique and Valuable Position o Few needs, many customers – strategic position can be derived from serving the few needs of many customers o Broad needs, few customers – a strategic position may be based on serving the broad needs of just a few customers o Broad needs, many customer – strategy may be oriented toward serving the broad needs of many customers 2. Strategy requires trade-offs in competing o A company has to choose what strategy to follow and what strategy to not follow 3. Strategy involves creating a “fit” among activities o Fit has to do with the ways a company’s activities interact and reinforce one another 6.2 The Strategic Management Process The Five Steps of the Strategic Management Process 1. Establish the Mission, Vision, and Values Statements - Mission statement – expresses the organizations purpose or reason for being - Vision statement – states what the organization wants to become, where it wants to go strategically - Values statement – describes what the organization stands for, its core priorities, the values its employees embody, and what its products contribute to the world 2. Asses the Current Reality - Current reality assessment, or organizational assessment to look at where the organization stands and see what is working and what could be different so as to maximize efficiency and effectiveness in achieving the organization’s mission o Tools include SWOT analysis, forecasting, benchmarking, and Porter’s model for industry analysis 3. Formulate the Grand Strategy - After the assessment of the current reality, explains how the organization’s mission is to be accomplished - Three common grand strategies are growth, stability, and defensive - Strategy formulation is the process of choosing among different strategies and altering them to best fit the organizations needs 4. Implement the Strategy - Putting strategic plans into effect is strategy implementation o Is not effective unless it can be translated into lower level plans 5. Maintain Strategic Control: The Feedback Loop - Strategic control consists of monitoring the execution of strategy and making adjustments, if necessary o Managers need control systems to keep strategic plans on track o Corrective action constitutes a feedback loop in which a problem requires that mangers return to an earlier step to rethink policies, redo budgets, or revise personnel arrangements 6.3 Establishing the Mission, Vision, and Values Statements - Characteristics of a Good Mission Statement

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o The mission is the organization’s purpose or reason for being, it is expressed in a mission statement Characteristics of a good vision statement o Vision is an organization’s long-term goal of what it wants to become, as expressed in a vision statement  Describes its long-term direction and strategic intent  Should be positive and inspiring, it should stretch the organization and its employees to achieve a desired future state that appears beyond its reach Characteristics of a good values statement o Values statement should describe what the organization stands for, its core priorities, the values its employees embody and what its products contribute to the world  Must be ingrained, inherent, and sacrosanct

6.4 Assessing the Current Reality Competitive Intelligence - Practicing competitive intelligence means gaining information about one’s competitors’ activities so that you can anticipate their moves and react appropriately o A service or product could revolutionize the market and force you to try to play catch-up - Gaining competitive intelligence… o The public prints and advertising o Investor information – information about new products and services may also be available through the reports filed with the Securities and Exchange Commission and through corporate annual reports o Informal sources – like conferences and shows SWOT Analysis - After competitive intelligence, the next point in establishing a grand strategy is environmental scanning, careful monitoring of an organization’s internal and external environments to detect early signs of opportunities and threats that may influence the firm’s plans o SWOT Analysis – also known as a situational analysis o Search for the Strengths, Weaknesses, Opportunities, and Threats affecting the organization o Should provide you with a realistic understanding of your organization in relation to its internal and external environments so you can better formulate strategy in pursuit of its mission  STRENGTHS – inside matters, could be work processes, organization, culture etc.  WEAKNESSES – inside matters, could be in same categories as strengths  OPPORTUNITIES – outside matters, could be market segment analysis, industry and competition analysis, etc.  THREATS – outside matters, could be same as opportunities Inside Matters: Analysis of Internal Strengths and Weaknesses - Organizational Strengths: the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its vision o Skilled workforce, superior reputation, strong financing - Organizational Weaknesses: the drawbacks that hinder an organization in executing strategies in pursuit of its vision o Obsolete technology, outdated facilities, a shaking marketing operation Outside Matters: Analysis of External Opportunities and Threats

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Organizational Opportunities – environmental factors that the organization may exploit for competitive advantage o Weak rivals, emerging markets, a booming economy - Organizational Threats – environmental factors that hinder an organization’s achieving a competitive advantage o New regulations, a shortage of resources, substitute products Forecasting: Predicting the Future - After the SWOT analysis, planners need to do forecasting for making long-term strategy - Forecast: a vision or projection of the future o Trend analysis and contingency planning - Trend Analysis: a hypothetical extension of a past series of events into the future o Example – time series forecast, which predicts future data based on patterns of historical data  Time series forecasts are used to predict long-term trends, cyclic patterns and seasonal variations - Contingency Planning: Predicting Alternative Futures: also known as scenario planning and scenario analysis, is the creation of alternative hypothetical but equally likely future conditions -

Benchmarking: Comparing with the Best - Benchmarking – is a process by which a company compares its performance with that of high performing organizations Porter’s 5 Competitive Forces - Porter’s Model for Industry Analysis – business –level strategies originate in five primary competitive forces in the firm’s environment: 1- Threats of new entrants 2- Bargaining power of suppliers 3- Bargaining power of buyers 4- Threats of substitute products or services 5- Rivalry among competitors 6.5 Formulating the Grand Strategy Three Common Grand Strategies 1- The Growth Strategy – grand strategy that involves expansion – as in sales revenues, market share, number of employees or number of customers/ clients served o Often takes form of an innovation strategy, growing market share or profits by innovating improvements in products or services 2- The Stability Strategy – a grand strategy that involves little or significant change 3- The Defensive Strategy – retrenchment strategy, involves reduction in the organization’s efforts Porter’s Four Competitive Strategies 1- Cost-leadership Wide markets 2- Differentiation Wide markets 3- Cost-focus Narrow markets 4- Focused-Differentiation Narrow markets

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Cost Leadership Strategy: Keeping Costs and Prices Low for a Wide Market - Keep costs and prices of a product or service below those of competitors and to target a wide market Differentiation Strategy: Offering Unique and Superior Value for a Wide Market - Offer products or services that are of unique and superior value compared with those of competitors but to target a wide market Cost-Focus Strategy: keeping costs and prices low for a narrow market - Keep the costs and prices of a product or service below those of competitors and to target a narrow market Focused –Differentiation Strategy: Offering Unique and Super Value for a Narrow Market - The focused- differentiation strategy is to offer products or services that are of unique and superior value compared to those of competitors and to target a narrow market Single- Product Strategy versus Diversification Strategy - Single-product strategy: a company makes and sells only one product within its market o Ex – one shop that sells only flowers etc. o The benefit – focus – making just one product allows you to focus your manufacturing and marketing efforts just on that product o The risk – vulnerability – if you do not focus on all aspects of the business, your entire business may go under The Diversification Strategy: Operating Different Businesses to Spread the Risk - Diversification – operating several businesses in order to spread the risk o Vertical integration – a firm expands into businesses that provide the supplies it needs to make its products or that distribute and sell its products The Blue Ocean Strategy - A blue ocean as a completely new market in contrast to a red ocean in which industry boundaries are defined and accepted and the competitive rules or the game are known o Blue Ocean Strategy: refers to a company’s creating a new, uncontested market space that makes competitors irrelevant, creates new consumer value and decreases costs The BCG Matrix - Means of evaluating strategic business units on the basis of their 1 – business growth rates and 2 – their share of the market

MANAGEMENT EXAM 2

6.6 Implementation and Controlling Strategy: Execution Implementing the Strategy - Strategy implementation is putting strategic plans into effect Maintaining Strategic Control - Strategic control consists of monitoring the execution of strategy and taking corrective action if necessary o Engage people o Keep it simple o Stay focused o Keep moving Execution: Getting Things Done - Execution is not simply tactics, it is a central part of any company’s strategy. It consists of using questioning, analysis, and follow-through to mesh strategy with reality, align people with goals and achieve results promised Three Core Process of Business: People, Strategy and Operation - People – you need to consider who will benefit you in the future o An effective leader tries to evaluate talent by linking people to particular strategic milestones, developing future leaders, dealing with nonperformers and transforming the mission and operations of the human resources department - Strategy – you need to consider how success will be accomplished - Operations – you need to consider what path will be followed How Execution Helps Implement and Control Strategy

Chapter 7: Individual and Group Decision Making 7.1 Two Kinds of Decision Making: Rational and Non-rational

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A decision is a choice made from among available alternatives. Decision making is the process of identifying and choosing alternative courses of action

Decision Making in the Real World Two Systems of Decision Making - System 1 – Intuitive and Largely Unconscious o Operates automatically and quickly, it is our fast, automatic, intuitive and largely unconscious mode as when we detect hostility in a voice or detect that one object is more distant than another - System 2 – analytical and conscious o Our slow, deliberate, analytical, and consciously effortful mode of reasoning which swings into action when we have to fill out a tax form or park a car in a narrow space - The curse of knowledge – as our knowledge and expertise grow, we may be less and less able to see things from an outsider’s perspective – make irrational decisions Rational Decision Making: Managers Should Make Logical and Optimal Decisions - The rational model of decision making, also known as the classical model, explains how managers should make decisions; it assumes managers will make logical decisions that will be the optimum in furthering the organization’s best interests - Stages: 1 – Identify the Problem or Opportunity – Determining the Actual versus the Desirable o Problems: difficulties that inhibit the achievement of goals (customer complaints, supplier breakdowns, staff turnover, sales shortfalls, competitor innovations) o Opportunities – situations that present possibilities for exceeding existing foals o Improvements – how to change conditions from the present to the desirable o Diagnosis – analyzing the underlying causes 2 – Think Up Alternative Solutions – Both the Obvious and the Creative 3 – Evaluate Alternatives and Select a Solution – Ethics, Feasibility, and Effectiveness  Is it ethical? Is it feasible? Is it ultimately effective? 4 – Implement and Evaluate the Solution Chosen o Successful implementation o Evaluation - What is wrong with the rational model? o The model is prescriptive, describing how managers ought to make decisions Non-rational Decision Making: Managers Find It Difficult to Make Optimal Decisions - Non-rational models of decision making explain how managers make decisions; they assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions (descriptive) – describe how managers actually make their decisions rather than how they should o Satisficing o Intuition 1. Bounded Rationality and the Satisficing Model – Satisfactory is Good Enough - Bounded rationality – the concept suggests that the ability of decision makers to be rational is limited by numerous constraints (such as complexity, time and money, and their cognitive capacity) - Satisficing model – managers seek alternatives until they find one that is satisfactory, not optimal 2. Intuition Model - Intuition is making a choice without the use of conscious thought or logical interference o Stems from expertise o Holistic hunch o Automated experience

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7.2 Making Ethical Decisions The Dismissal Record of Business Ethics Road Map to Ethical Decision Making: A Decision Tree - Decision Tree: a graph of decisions and their possible consequences; it is used to create a plan to reach a goal 1. Is the proposed action legal? 2. If “yes,” Does the proposed action maximize shareholder value? 3. If “yes,” is the proposed action ethical? 4. If “no,” would it be ethical not to take the proposed action? 7.3 Evidence- Based Decision Making and Analytics Evidence Based Decision Making - Implementation Principles: 1. Treat your organization as an unfinished prototype 2. No brag, just facts 3. See yourself and your organization as outsiders do 4. Evidence-based management is not just for senior executives 5. Like everything else, you still need to sell it 6. If all else fails, slow the spread of bad practice 7. The best diagnostic question: what happens when people fail? - What makes it hard to be evidence based o Too much evidence o Not enough good evidence o Evidence doesn’t quite apply o People are trying to mislead you o You are trying to mislead you o The side effects outweigh the cure o Stories are more persuasive, anyway - Analytics – business analytics is the term used for sophisticated forms of business data analysis o Use of modeling, multiple applications, support from top management 1. Use of modeling: going beyond simple descriptive statistics a. Predictive modeling is a data-mining technique used to predict future behavior and anticipate the consequences of change 2. Multiple applications, not just one 3. Support from the Top - Big Data – includes not only data in corporate databases but also web-browsing data trails, social network communications, sensor data, and surveillance data - Big Data Analytics- the process of examining large amounts of data of a variety of types to uncover hidden patterns, unknown correlations, and other useful information o Uses:  Analyzing consumer behavior and spurring sales  Improving hiring and personnel management  Tracking movie, music, TV, and reading data  Exploiting farm data  Advancing health and medicine  Aiding public policy 7.4 Four General Decision Making Styles

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A decision-making style reflects the combination of how an individual perceives and responds to information Value Orientation and Tolerance for Ambiguity - Value orientation reflects the extent to which a person focuses on either task and technical concern or people and social concerns when making decisions - Tolerance for ambiguity – indicates the extent to which a person has a high need for structure or control in his or her life

1. The Directive Style: Action – Orientation Decision Makers Who Focus on Facts o Have a low tolerance for ambiguity and are oriented toward task and technical concerns in making decisions. They are efficient, logical, practical, and systematic in their approach to solving problems 2. The Analytical Style: Careful Decision Makers Who Like Lots of Information and Alternative Choices o Have a much higher tolerance for ambiguity and are characterized by the tendency to overanalyze a situation o Like to consider more information and alternatives than those who follow the directive style o Careful decision makers who take longer to make decisions but who also respond well to new or uncertain situations 3. The Conceptual Style: Decision Makers Who Rely on Intuition and Have Long-term Perspective o High tolerance ambiguity and tend to focus on the people or social aspects of a work situation o Take a broad perspective to problem solving and like to consider many options and future possibilities o Adopt long –term perspective and rely on intuition and discussions with others to acquire information o Willing to take risks and are good at finding creative solutions to problems o Can foster an indecisive approach to decision making 4. The Behavioral Style: The Most People-Oriented Decision Makers o Most people oriented o Work well with others and enjoy social interactions in which opinions are openly exchanged. Behavioral types are supportive, are receptive to suggestions, show warmth, and prefer verbal to written information o Tendency to avoid conflict and to be concerned about others. This can lead behavioral types to adopt a wishy washy approach to decision making and to have a hard time saying no 7.5 How to Overcome Barriers to Decision Making

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Decision Making and Expectations about Happiness - People expect certain life events to have a much greater emotional effect than they do How Do Individuals Respond to a Decision Situation? Ineffective and Effective Responses - Four ineffective Reactions 1. Relaxed Avoidance – a manager decides to take no action in the belief that there will be no great negative consequences o Form of complacency – you don’t see or you disregard the signs of danger/ opportunity 2. Relaxed Change – a manger realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk o Form of satisficing, the manager avoids exploring a variety of alternatives in order to make the best decision 3. Defensive Avoidance – a manger cannot find a good solution and follows by procrastination, passing the buck, or denying the risk of any negative consequences o Posture of resignation and a denial of responsibility for taking action 4. Panic – a manger is so frantic to get rid of the problem that he or she cant deal with the situation realistically - Effective Reactions o In deciding to decid...