MGT 4850 Exam 1 Study Guide PDF

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MGT 4850 Exam 1 Study Guide (Chapters 1-5)

Chapter 1: What is strategy and why is it important? Strategy: the action plan for outperforming its competitors and achieving superior profitability. Take into consideration: how to attract and please customers, how to compete against rivals, how to position the company in the marketplace, how best to respond to changing economic and market conditions, how to capitalize on attractive opportunities to grow the business, how to achieve the company’s performance targets. Objective of a well-crafted strategy: lasting success that can support growth and secure the company’s future over the long term. Every strategy needs a distinctive element that attracts customers and produces a competitive edge.A company’s strategy provides direction and guidance of what the company should and should not do. A company achieves a competitive advantage when it provides buyers with superior value compared to rival sellers or offers the same value at a lower cost to the firm. The advantage is sustainable (not temporary) if it persists despite the best efforts of competitors to match or surpass this advantage. Four dependable strategies: 1. Striving to be the industry’s low-cost provider, thereby aiming for a costbased competitive advantage over rivals. 2. Outcompeting rivals on the basis of differentiating features (higher quality, wider product selection, added performance, value-added services, more attractive styling, technological superiority). 3. Developing an advantage based on offering more value for the money (bestcost strategy). 4. Focusing on a narrow market niche within an industry A company’s strategy evolves incrementally from management’s ongoing efforts to fine-tune the strategy and to adjust certain strategy elements in response to new learning and unfolding events. If competitive conditions change frequently, strategies are short lived. Proactive Strategy: planned initiatives to improve the company’s financial performance and secure a competitive edge Reactive Strategy: responses to unanticipated developments and fresh market conditions Deliberate Strategy: consists of proactive strategy elements that are both planned and realized as planned. Emergent Strategy: consists of reactive strategy elements that emerge as conditions change. Realized Strategy: combination of proactive and reactive, with some elements being abandoned because they are ineffective.

MGT 4850 Exam 1 Study Guide (Chapters 1-5)

Business Model: (blueprint) sets forth the logic for how its strategy will create value for customers, while at the same time generate revenues sufficient to cover costs and realize profits. 1. Customer value proposition: company approach to satisfying buyer needs (V-P) 2. Profit formula= determines a cost structure that ensures profits. Lower costs= higher profitability How to tell if a strategy is a winner? 1. The Fit Test: how well does the strategy fit the company’s situation? Must be matched to industry, market and other external factors AND tailored to company resources, or else it won’t fit. 2. The Competitive Advantage Test: can the strategy help the company achieve a sustainable competitive advantage? 3. The Performance Test: is the strategy producing good company performance? Two indicators, 1. competitive strength and market standing, and 2. profitability and financial strength. A clear and reasoned strategy is the road map to competitive advantage, game plan for pleasing customers, and formula for improving performance. Crafting and executing strategies are core management functions.

Chapter 2: Leading the process of crafting and executing strategy Strategy-Making, Strategy-Executing Process: 1. Developing a strategic vision of the company’s future, a mission statement that defines the company’s current purpose, and a set of core values to guide the pursuit of the vision and mission. This managerial task provides direction for the company, motivates and inspires company personnel, aligns and guides actions throughout the organization, and communicates to stakeholders management’s aspirations for the company’s future. a. Strategic vision: describes managements aspirations for the future and delineates the company’s strategic course and long-term direction. FUTURE b. An effectively communicated vision is a valuable management tool for enlisting the commitment of company personnel to engage in actions that move the company forward in the intended direction. c. Wording a Vision: be graphic, forward looking, focused, wiggle room, feasible, indication of WHY it makes sense, memorable. d. Mission Statement: present business and purpose: identifies products, specifies buyer needs that it seeks to satisfy, gives the company an identity. PRESENT e. Values: beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company’s business and pursuing its strategic vision and mission.

MGT 4850 Exam 1 Study Guide (Chapters 1-5)

2. Setting objectives to convert the vision and mission into performance targets and using the targeted results as yardsticks for measuring the company’s performance. Objectives need to spell out how much of what kind of performance by when. Two broad types of objectives are required: financial objectives and strategic objectives. A balanced-scorecard approach for measuring company performance entails setting both financial and strategic objectives. a. Strategic Intent: when a company relentlessly pursues an ambitious strategic objective, concentrating the full force of resources and competitive actions on achieving that objective. b. Stretch objectives: set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results. c. Financial Objectives: relate to the financial performance targets management has established for the organization to achieve. (not enough alone). Past or current performance is not reliable for future, leading indicators are strategic outcomes that indicate competitiveness or market position is stronger/weaker. d. Strategic Objectives: target outcomes that indicate a company is strengthening its market standing, competitive position, and future business prospects. 3. Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Masterful strategies come from doing things differently from competitors where it counts – outinnovating them, being more efficient, being more imaginative, adapting faster – rather than running with the herd. a. Corporate strategy (multi business) b. Business strategy (individual businesses that compete in one industry) c. Functional-area strategy (marketing, R&D, logistic) d. Operating strategy (key operating units) Strategy making is an inclusive collaborative activity involving Senior Executives to operating managers. CEO is accountable. Strategic Plan: lays out its future direction and business purpose, performance targets, and strategy. 4. Executing the chosen strategy and converting the strategic plan into action. Management the executing of strategy is an operations-oriented activity aimed at shaping the performance of core business activities in a strategy-supportive manner. Management’s handling of this can be successful if the company meets or exceeds strategic and financial performance targets and shows progress in achieving the vision. 5. Monitoring developments, evaluating performance, and initiating corrective adjustments in light of actual experience, changing conditions, new ideas, and new opportunities. This task of the strategy management process is the trigger point for deciding whether to continue or change the

MGT 4850 Exam 1 Study Guide (Chapters 1-5) company’s vision and missions, objectives, strategy or strategy execution methods. NEVER FINAL, always ongoing and change. Board of Directors Obligations 1. Ensure that the company issues accurate financial reports and has adequate financial controls 2. Critically appraise the company’s direction, strategy, and strategy execution 3. Evaluate the caliber of senior executive’s strategic leadership skills 4. Institute a compensation plan for top executives that rewards them for actions and results that serve stakeholders interests- especially shareholders

Chapter 3: Evaluating a company’s external environment 7 Questions for a company’s external situation 1. What are the strategically relevant factors in the macro-environment? a. Industries differ significantly to how they are affected by conditions in the broad macro-environment. b. PESTEL analysis (political, economic, sociocultural, technological, environmental/ecological, and legal/regulatory) provides a framework. Identifying the strategically relevant features of the macroenvironment sets the stage for the analysis to come, since thy play an important role in determining an industry’s potential for attractive profits. 2. What kinds of competitive forces are industry members facing, and how strong is each force? a. The strength of competition is a composite of five forces: i. Industry Rivalry ii. Substitutes iii. New Entrants iv. Supplier Bargaining Power v. Buyer Bargaining Power 3. What factors are driving changes in the industry and what impact will they have on competitive intensity and industry profitability? a. Long-term industry growth rate b. Increasing globalization c. Internet related developments d. Changing buyer behavior e. Technological change and manufacturer process innovation f. Product and marketing innovation g. Entry or exit of major firms h. Diffusion of know how i. Efficiency improvements in adjacent markets j. Reductions in uncertainty and business risk k. Regulatory and government policy changes l. Changing societal factors m. ONCE an industry’s change drivers have been identified, the analytical tsk becomes one of determining whether they are acting to make the industry environment more or less attractive.

MGT 4850 Exam 1 Study Guide (Chapters 1-5) 4. What market positions do industry rivals occupy – who is strongly positioned and who is not? a. Strategic group mapping is a valuable tool for understanding the similarities, differences, strengths, weaknesses in the market positions of rivals. b. Some positions on the map are more favorable than others. The profit potential of different strategic groups may not be the same because industry driving forces and competitive forces likely have varying effects on the industry’s distinct strategic groups. 5. What strategic moves are rivals likely to make next? a. Scout competitors well to anticipate the actions to help prepare countermoves and allow managers to take rivals’ probable actions into account. 6. What are the key factors for competitive success? a. KSF (key success factors) are extremely important. Correctly diagnosing an industry’s KSFs raises a company’s chances of crafting a sound strategy. b. On what basis do buyers of the industry’s product choose between the competing brands of sellers? What resources and competitive capabilities must a company have to be competitively successful? What short comings are almost certain to put a company at a significant competitive advantage? 7. Is the industry outlook conductive to good profitability? a. Sum up the results from applying each of the frameworks: PESTEL, five forces analysis, driving forces, strategic group mapping, competitor analysis, and key success factors. b. If answers from each framework reveal that a company’s profit prospects in that industry are above average, then the industry environment is basically attractive FOR THAT COMPANY. What may look attractive for one company may not work well for another company. Clear diagnoses of a company’s external situation are the first step to crafting strategies that are matched to industry and competitive conditions.

Chapter 9: Strategy ethics and social responsibility Ethics concerns standards of right and wrong. Business ethics concerns the application of ethical principles to the actions and decisions of businesses and the conduct of their personnel. Ethical principles in business are not materially different from ethical principles in general. 1. School of Ethical Universalism: understandings across multiple countries and cultures about what constitutes right and wrong behaviors give rise to universal ethical standards that apply to members of all societies, companies, and businesspeople. 2. School of Ethical Relativism: different societal cultures and customs have divergent values and standards of right and wrong. What is ethical or unethical must be judged in the light of local customs and social norms that can vary from one culture/nation to another.

MGT 4850 Exam 1 Study Guide (Chapters 1-5) 3. Integrated Social Contracts Theory: universal ethical principles based on collective views of multiple cultures combined to form a social contract that all individuals in all situations have a duty to follow. Universal norms always take precedence over local norms. Three factors that contribute to unethical behaviors 1. Faulty oversight that enables the pursuit of personal gain 2. Heavy pressures on company managers to meet/beat short term targets 3. Company culture that puts profitability ahead of ethical behavior Business Ethics Failure Costs 1. Visible costs: fines, penalties, lower stock prices 2. Internal administrative costs: legal costs 3. Intangible costs: customer defections and damage to reputation Corporate Social Responsibility: a company’s duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and support philanthropic endeavors in local communities where it operates. Triple Bottom Line: company performance in economic, social, environmental. Sustainability: a firm’s relationship to the environment and it’s use of natural resources. Capable of meeting needs of the present without compromising the world’s ability to meet future needs. Deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against endangerment of the planet.

Chapter 4: Evaluating company resources and competitive position Key Questions: 1. How well is the present strategy working? a. Evaluating the strategy qualitatively and quantitatively (financial ratios). b. The stronger a company’s overall performance, the less likely the need for radical strategy changes. c. The weaker a company’s overall performance and the faster the changes in external environment, the more the current strategy may be questioned. 2. Do the company’s resources and capabilities have sufficient competitive power to give it a sustainable advantage over competitors? a. A company’s resources and capabilities are its competitive assets and determine whether its competitive power in the marketplace will be strong or weak. b. Resource and Capability Analysis: provides managers with a powerful tool for sizing up the company’s competitive assets and determining if they can provide the foundation for competitive success.

MGT 4850 Exam 1 Study Guide (Chapters 1-5)

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1. Identify r & c. 2. Examine to determine importance and strengths over rival firms. c. Conduct the four VRIN tests. Valuable, Rare, Inimitable, Nonsubstitutable. d. If the firm has resources and capabilities that are valuable and rare = competitive advantage e. If the firm has resources that are inimitable (cants be copied) and nonsubstitutable= sustainable competitive advantage. Is the company able to seize market opportunities and overcome external threats to its future wellbeing? a. Perform a SWOT Analysis i. Conclusions of overall situation told by strengths, weaknesses, opportunities, threats. ii. Act on that conclusion to match the company’s strategy to strengths and market opportunities, and correct weaknesses and defend against threats. Are the company’s cost structure and value proposition competitive? a. Are costs competitive with those of rivals? Is the company differentiated compared to rivals? b. Value Chain Analysis: c. Benchmarking: comparing how different companies perform various value chain activities, how materials are purchased, how inventories are managed, how products are assembled & then making cross company comparisons of costs and effectiveness. On an overall basis, is the company competitively stronger or weaker than key rivals? a. Quantitative competitive strength assessment indicates where a company is competitively strong and weak and provide insight in a company’s ability to defend or enhance its market position. b. A company’s competitive strategy should be built around competitive strengths. What strategic issues and problems merit front-burner managerial attention? a. This step determines what issues stand in the way of company success. b. Identifies a WORRY LIST of issues that need to be resolved for financial and competition success. Deciding on a strategy and actions to take follows this list.

A completely done evaluation of a company’s resources, capabilities, and value chain activates expose strong and weak points in the present strategy and how attractive or unattractive the company’s competitive position is and why. Important!!! For crafting a strategy that is suited to company’s competitive circumstances....