MGMT 464 Exam 1 Study Guide PDF

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Exam 1 Study Guide Chapter 1 

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Strategic Management – is a set of managerial decisions and actions that help determine the longterm performance of an organization  Environment scanning (both external and internal)  Strategy formulation  Strategy implementation  Evaluation and control Strategy – ideas, plans, and actions taken by firms to compete  Involves 3 groups of people (employees, customers, and stakeholders)  Purpose of strategy – to achieve a competitive advantage  Distinctly  More efficient  *Sustainable competitive advantage*  Find something that no one can copy Strategy formation – is the process of investigation, analysis, and decision making that provides the company with the criteria for attaining a competitive advantage  Mission – is the purpose or reason for the organization’s existence  Objectives – are the end results of planned activity  Strategy – forms a comprehensive master approach that states how the corporation will achieve its mission and objectives.  Policy – is a broad guideline for decision making that links the formulation of a strategy with its implementation Corporate strategy – describes a company’s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines Business strategy – usually occurs at the business unit or product level, and it emphasizes improvement of the competitive position of a corporation’s products or services in the specific industry or market segment served by the business unit Functional strategy – is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity Strategic Management Process (SMP) – it’s a process not an event!  1. Forming a strategic vision (SV)  This is NOT a mission statement, which is a spotlight on the now  Future oriented “chart a course”  2. Setting objectives  “tangibilize” the vision  Must involve managers on all levels  *Ultimately top management is responsible for SV  Two yard sticks on performance  Financial Performance – ROI, Stock...etc.  Strategic Objectives – broader – market share, patents, customer service…etc.  3. Crafting a strategy “Good strategy making is more  “Blueprint”  How do you want to get there? outside-in than inside-out”  Proactive activity  4. Implementing and executing a strategy  “fits”

Program/tactic – is a statement of the activities or steps needed to support a strategy  Budget – is a statement of a corporation’s programs in terms of dollars  Procedures – sometimes termed Standard Operating Procedures (SOP), are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done  5. Evaluation and Control  Monitoring new developments  Taking corrective action when necessary Criticism of SMP  Unpredictability of the real world – reactive  Lack of a major rule by subordination  Role of serendipity Responses to Criticisms  Planning under uncertainty  Contingency Plans  Ivory Tower planning  Involve managers  Procedural justice  Planning for the present – “fits” now  Strategic intent - stretch  Cognitive Biases (CB)  A big way to deal with CB is Awareness!  Types of CB  Prior hypothesis bias – who have strong prior beliefs and tend to make decisions on the bases of these beliefs even when they are presented information that proves them wrong. They tend to look for only information that confirms their beliefs  Escalating Commitment – sticking to a decision even though it has been proven to be the wrong one  Reasoning by analogy – using very simple analogies to explain very complex decisions (over simplifying things)  Representativeness – biases rooted in the tendency to use information from very small samples  Illusion of control – (aka hubris hypothesis) believe they can control things that are out of their control Techniques for improving decision making  Devil’s advocacy – be contrary and question the ideas  Dialectic inquiry – debate format Triple bottom line – a term used to describe a business’s sustainability  The management of traditional profit/loss  The management of the company’s social responsibility  The management of its environmental responsibility Globalization – the integrated internationalization of markets and corporations, has changed the way modern corporations do business Innovation – as the term is used in business, is meant to describe new products, services, methods, and organizational approaches, that allow the business to achieve extraordinary returns Sustainability – refers to the use of business practices to manage the triple bottom line Population ecology – suggests that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions 

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Institution theory – proposes that organizations can and do adapt to changing conditions by imitating other successful organizations Strategic choice perspective – goes one step further by proposing that not only do organizations adapt to a changing environment, but they also have the opportunity and power to reshape their environment Organizational learning theory – which says that an organization adjusts defensively to a changing environment and uses knowledge offensively to improve the fit between itself and its environment Environment scanning – is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation  SWOT analysis – strengths, weaknesses, opportunities, and threats Triggering Event – is something that acts as a stimulus for a change in strategy  Possible trigging events:  New CEO, external intervention, threat of a change in ownership, performance gap, and strategic inflection point Mitzberg’s modes of strategic decision making  Entrepreneurial mode – strategy is made by one individual  Adaptive mode – somethings referred to as “muddling through,” this decision-making mode is characterized by reactive solutions to existing problems  Planning mode – this decision-making mode involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy  Logical incrementalism – can be viewed as a synthesis of the planning, adaptive, and, to a lesser extent, the entrepreneurial mdoes Strategic audit – provides checklist of questions, by area or issue, that enables a systemic analysis to be made of various corporate functions and activities

Chapter 2 & 3  

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Corporate Governance o Relationship between top management, stakeholders, and board of directors Responsibilities of Board of Directors (listed most important to least important) o Set corporate strategy (not day-to-day decisions) o Hire/fire CEO and top management o Monitor major decisions o Approve major financial spending o Caring for shareholder interests Insider – someone who works for that company Outsider – someone who does not work for that company or is not a direct employee Agent – top management Agency theory – should be more outsiders, deals with agents o Problems will arise in companies because agents are not taking responsibility for actions unless they own stock in the company Stewardship theory – more insiders o Outsiders are less effective; lack of interest, less availability, competency is a problem, can they be objective Types of outsiders o Affiliated directors – law firm seat o Retired directors – someone who has retired from the company o “family” directors – someone who could have inherited the seat from a family member or could be someone who is a friend

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Board of director recommendations o Majority of BOD should be comprised of outsiders o Separate the positions of CEO and Chairman o Turnover – committee of outsiders (they don’t just nominate outsiders) o Appoint members that bring knowledge or something of value (expertise)  This could be knowledge of accounting or finance, not just in the field the company is in o Require BOD to own a substantial amount of shares Corporate social responsibility o Proposes that private companies have a responsibility to society that extends beyond making a profit Milton Friedman o “A fundamentally subversive document” o Do nothing illegal, but do the minimum required Carroll’s view of responsibility of business o 1st – economic (to make a profit) o 2nd – legal o 3rd – act ethically (need to follow the generally held beliefs of your society) o 4th – Discretionary (voluntary work) Codetermination – the inclusion of a corporation’s workers on its board Direct interlocking directorate – occurs when two firms share a director or when an executive of one firm sits on the board of a second firm Indirect interlocking directorate – occurs when two corporations have directors who also serve on the board of a third firm Staggered board – stagger elections so that only one portion of the board stands for election each year Keiretsu – a Japanese term for a set of companies with interlocking business relationships and share-holdings Sarbanes-Oxley Act – June 2002, designed to protect shareholders from the excesses and failed oversight that characterized criminal activities Stakeholders – they affect or are affected by the achievement of the firm’s objectives o Stakeholder analysis – the identification and evaluation of corporate stakeholders  Direct connection – directly affect corporation activities  Secondary stakeholders – those who have an indirect stake in the corporation Moral relativism – claims that morality is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another o Naïve relativism – based on the belief that all moral decisions are deeply personal and that individuals have the right to run their own lives o Role relativism – based on the belief that social roles carry with them certain obligations to that role o Social group relativism – based on the belief that morality is simply a matter of following norms of an individual’s peer group o Cultural relativism – based on the belief that morality is relative to a particular culture Code of ethics – specifies how an organization expects its employees to behave while on the job Whistle-blowers – those employees who report illegal or unethical behavior on the part of others Ethics – is defined as the consensually accepted standards of behavior for an occupation Morality – constitutes one’s rules of personal behavior based on religious or philosophical grounds Law – refers to formal codes that permit or forbid certain behaviors

Utilitarian approach – proposes that actions or plans should be judged by their consequences o Individual rights approach – proposes that human beings have certain fundamental rights that should be respected in all decisions o Justice approach – proposes that decision makers be equitable, fair, and impartial in the distribution of costs and benefits to individuals and groups Immanuel Kant’s 2 principles (called categorical imperatives) o “Golden Rule” – treat others as you would like to be treated o A person should never treat another human being as a means, but always as an end o

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Chapter 4   

SWOT analysis – from the perspective of one firm Industry – a group of companies that are offering products that are close substitutes to each other Michael Porter’s 5 forces model (now including a sixth) o Risk of new entrants (potential competitors)  Not in the industry now  Find ways to discourage potential competitors, such as making it more expensive  Barriers to entry  Absolute cost advantage o Superior production o Control of particular inputs (raw materials) o Access to cheaper funds (borrowing interest rates)  Brand loyalty o Continuous advertising o Patent protection o Product innovation o Product quality o After sales service  Economies of scale o Mass production of a standardized product o Bulk purchasing o Advertising (superbowl example)  Switching costs o Customers “locked in” – when switching costs are too high o Relationship  Government regulations o Laws to limit any entries o Casinos example o Degree of rivalry  Competitive industry structure  Fragmented o A lot of companies that are small o Boom and bust o Excess capacity  Consolidated o Oligopoly o Few companies that are large o Interdependent – the actions of one never go unnoticed

o Airline example (competitive spiral – death spiral, price war) How to avoid competitive spiral  Explicit agreements – price fixing, which is illegal  Tacit agreement – dominant firm sets the price and everyone follows  Non-price factors – loyalty programs  Demand conditions  As demand goes up, rivalry goes down  As demand goes down, rivalry goes up  Height of exit barriers  When they are high you have excess capacity  Supply is greater than demand with lead to lower prices  Types of exit barriers o Invertent – making no other products o Economic dependency – not diversified o Emotional attachment o Bargaining power of buyers  Not just the end user  Why is it a threat when BP goes up?  Low prices  Increase quality which increases cost  When are they most powerful?  Supply industry is fragmented and buyers are consolidated  Buyers buy in bulk  Buyers have low switching costs  Buyers purchase from multiple suppliers  Backward vertical integration o Bargaining power of suppliers  Why is it a threat when BP goes up?  Prices increase  They lower quality  When are they most powerful?  Has few substitutes and important  Buyer is not important to the supplier  Switching costs are high  Supplier threaten with forward vertical integration o Threat of substitute products  When it goes up it is a threat  This is a product that can be used instead of your product o Role of complementary products  Sales of one goes up the other goes up  When this goes up it is an opportunity Things to remember o Is it either an opportunity or a threat o If any of the factors increases they become a threat  Every one limits the ability of companies to raise prices which limits profits o The opposite is true, as they go down they become opportunities o The forces change over time o Through your choice of strategy you can impact the change of the 5 forces, don’t have to just take it Incumbent firms – these are our competitors now, already in the industry 

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Macroenvironment – things that influence the 5 forces o Macroeconomic environment – well-being of an economy  Economic growth – expansion in consumer expenditures (negative economic growth is a recession)  Interest rates – cost of borrowing goes up or down  Currency exchange rates – when its stronger or weaker  Ex. $ does up and yen goes down, it will cost more to japan so exports will go down  Inflation – purchasing power of the dollar is decreasing  When inflation is high federal reserve will raise interest rates o Technological environment  Can be both creative and destructive o Social environment o Demographic environment – race, age o Political/legal environment  “reward your friends and punish your enemies” Environmental uncertainty – the degree of complexity plus the degree of change that exists in an organization’s external environment 8 current sociocultural trends transforming North America o Increasing environmental awareness o Growing health consciousness o Expanding seniors market o Impact of millennials o Declining mass market o Changing pace and location of life o Changing household composition o Increasing diversity of workforce and markets Strategic types – is a category of firms based on a common strategic orientation o Defenders – companies with a limited product line o Prospectors – fairly broad product lines o Analyzers – operate in at least two different product-market areas o Reactors – lack a consistent strategy-structure-culture relationship Key success factors – are variables that can significantly affect the overall competitive positions of companies within any particular industry Competitive intelligence – is a formal program of gathering information on a company’s competitors...