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BUS 800 Exam Review.docx

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BUS 800
Stewart Smith

BUS 800 Review Chapter 1 Strategy is its action plan or outperforming its competitors and achieving superior profitability. • What is our present situation? o Business environment and industry conditions o Firm’s financial and competitive capabilities • Where do we want to go from here? o Create a vision for the firm future direction • How are we going to get there? o Action plan  Market position  Attracting customers  Achieving the target financial and market performance • Strategy is all about How o To attract and please customer o To compete against rivals o To position the firm in the marketplace o Best to respond to changing economic and market conditions o To capitalize on attractive opportunities to grow the business o To achieve the firm’s performance target Afirm needs a strategy to specify what actions are going to be taken (Heart and soul of strategy) • To improve its financial performance • To strengthen its competitive position • To gain a sustainable competitive advantage over tis market rivals Acreative, distinctive strategy • Help produce above-average profits • Increases competitive pressure on rivals Competitive advantage • Require meeting customer needs either more effectively or more efficiently • Provides buyer with superior value compare to rival sellers or offers the same value at a lower cost to the firm. Sustainable competitive advantage • Requires giving buyers lasting reason to prefer a firm’s products or services over those of its competitors. • If its advantage persists despite the best efforts of competitors to match or surpass its advantage. Building competitive advantage • Low-cost provider (efficiency) • Differentiation on features (effectiveness) • Focus on market niche (effectiveness and/or efficiency) • Best-cost provider (lowest price for differentiated goods) Create a sustainable competitive advantage • Develop valuable expertise and competitive capabilities over the long-term that rivals cannot readily copy, match or best. • Put the constant quest for sustainable competitive advantage at center stage in crafting your strategy Strategy evolves over time (managers modify strategy in response to) because of • Changing market conditions • Advancing technology • Fresh moves of competitors • Shifting buyer needs • Emerging market opportunities • New ideas for improving the strategy Realized (current) strategy is a blend of: • Proactive (deliberate) strategy elements that include both continued and new initiatives • Reactive (emergent) strategy elements that are required due to unanticipated competitive developments and fresh market conditions Business will make money (business model) • by providing customer with value o the firm’s customer value proposition • by generating revenues sufficient to cover costs and produce attractive profits o the firm’s profit formula The customer value proposition • Satisfying buyer wants and needs at a price customer will consider a good value. Good value low price Awinning strategy must pass three test: • The fit test o Does it exhibit dynamic fit with the external and internal aspects of the firm’s overall situation • The competitive advantage test o Can it help the firm achieve a significant and sustainable competitive advantage? • The performance test o Can it produce good performance as measured by the firm’s profitability, financial and competitive strengths, and market standing? Strategy provides: • Aprescription for doing business • Aroad map to competitive advantage • Agame plan to pleasing customers • Aformula for attaining long-term standout marketplace performance. • Good strategy + good strategy execution = good management Chapter 2 What does the strategy-making, strategy-executing process entail? (Corporate governance) • Developing a strategic vision, a mission statement, and a set of core values. o Describes management’s aspirations for the future o Delineates the company strategic course and long-term direction • Setting objective for measuring the firm’s performance and tracking its progress o Converts vision and mission into specific measureable, timely performance targets o Creates yardsticks to track performance o Motivation and inspire employees to greater levels of effort • Crafting a strategy to move the firm along its strategic course and to achieve its objectives o Addresses a series of strategic how’s o Require choosing among strategic alternatives o Do things differently from competitors o Is a collaborative team effort that involves managers in various positions at all organizational levels • Implementing and Executing the strategy efficiently and effectively o Strategic plans into actions requires  Directing organizational action  Motivating people  Meeting performance target  Strategy supportive work  Firm’s competencies and competitive capabilities • Monitoring developments, evaluating performance, and initiating corrective adjustments. o Evaluating performance  Deciding whether enterprise is passing the three tests of a winning strategy o Initiating corrective adjustments  Deciding whether to continue or change the firm’s vision and mission, objectives, strategy, and/or strategy execution methods  Based on organizational learning Strategic plan lays out its future direction, performance targets and strategy Vision – future business path (where we are going) • Foundation for mission Why we communicate the vision? • Employee commitment to the firm’s chosen strategic direction • Motivate, inform and inspires internal and external stakeholders • Reduces the risk of rudderless decision making • Help prepare for future Mission – present business purpose (who we are and what we do) • Firm intends to compete and customer it intends to serve • More concrete than the vision • Specific language to give the firm its own unique identity • Should focus on describing the firm’s business • Not on making a profit. Earning a profit is an objective not a mission Core Values – are the beliefs, traits, and behavioral norms that firm’s personnel are expected to display in conducting the firm’s business and pursuing its strategic vision and mission. Objectives – organization’s performance target • Well stated objective are quantifiable and measurable • Deadline for achievement Strategic intent • Indicates firm’s intent to making quantum gain in competing against key rivals and to establishing itself as a winner in the market place, often against long odds • Involves establishing a grandiose performance target out of proportion to immediate capabilities and market position but then devoting the firm’s full resources and energies to achieving the target over time • Entails sustained, aggressive actions to take market share away from rivals and achieve a much stronger market position. Setting stretch objectives promotes better overall performance because stretch targets • Push a firm to be more inventive • Increase the urgency for improving financial performance and competitive position • Cause the firm to be more intentional and focused in its actions • Act to prevent internal inertia and contentment with modest to average gains in performance Objective to set • Financial objective o Outcome focused on improving financial performance • Strategic objective o Outcomes focused on improving competitive strength and market standing • Short term objectives o Quarterly and annual performance • Long term objectives (3 – 5 years) o Force consideration of what to do now to achieve optimal long term performance Abalanced scorecard measures a firm’s optimal performance by • Placing balanced emphasis on achieving both financial and strategic objectives • Tracking both measures of financial performance and measures of whether a firm is strengthening its competitiveness and market position. Objectives are needed at all levels • Objective setting process is more top-down than bottom up • First set organization-wide objectives and performance targets • Next, set business and product line objectives • Then, establish functional and departmental objectives • Individual objectives are established last Corporate strategy is a strategy at the multi-business level, concerning how to improve company performance or gain competitive advantage by managing a set of businesses simultaneously Business strategy is s strategy at the single-business level, concerning how to improve the performance or gain a competitive advantage in a particular line of business. Acompany’s strategic plan consists of • Strategic vision and business mission, and core value • Strategic and financial objectives • Strategy Chapter 3 Macro-environment encompasses the broad environmental context in which a company’s industry is situated that includes strategically relevant components over which the firm has no direct control. What are the strategically relevant factors in the macro-environment • PESTEL analysis focuses on the six principal components of strategic significance in the macro-environment o Political o Economic o Social o Technological o Environmental o Legal What are the industry’s dominant economic traits? • Market size and growth rate • Number of rivals • Scope of competitive rivalry • Buyer needs and requirement • Degree of product differentiation • Product innovation • Supply/demand conditions • Pace of technological change • Vertical integration • Economies of scale • Learning and experience curve effects (bigger = better) o Exist when a company’s unit costs decline as its cumulative production volume increase because of  Accumulating production know-how  Growing mastery of the technology How strong are the industry’s competitive forces? • The Five competitive forces o Rival seller o Potential new entrants o Producers of substitute products o Supplier bargaining power o Customer bargaining power • How to do it 1. Identify the specific competitive pressures associated with each of the five forces 2. Evaluate the strength of each competitive force – fierce, strong moderate to normal or weak 3. Determine whether the collective strength of the give competitive forces is conducive to earning attractive profits Competitive pressures among rivals seller • Strongest of the five forces • Key factor in determining strength of rivalry • Less costly for buyers to switch brands • Products are becoming less differentiated • High exit barriers keep firms from existing the industry Competitive pressures associated with potential entry • Seriousness of threat depends on o Size of pool of entry candidates and available resources o Barriers to entry o Reactive of existing firms Common barriers to entry • Sizable economies of scale • Cost and resource disadvantages independent of
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