Final Exam Notes

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Published on 30 Dec 2011
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Chapter 1
three themes that are critical to developing competency in the field of strategic management are:
1. firms and industries are dynamic in nature
2. to succeed, the formulation of a good strategy and its implementation should be inextricably connected
3. strategic leadership is essential if a firm is to both formulate and implement strategies that create value
business strategy strategy for competing against rivals within a particular industry or industry segment
corporate strategy strategy for guiding a firm’s entry and exit from different businesses, for determining how a parent company adds value to
and manages its portfolio of businesses, and for creating value through diversification
strategy formulation process of developing a strategy
strategy implementation process of executing a strategy
the 5 elements of the strategy diamond:
1. arenas where will we be active
2. vehicles how will we get there
3. differentiators how will we win in the marketplace
4. staging and pacing what will be our speed and sequence of moves
5. economic logic how will we obtain our returns
competitive advantage a firm’s ability to create value in a way that its rivals cannot
three perspectives of competitive advantage:
internal perspective focuses on resources and capabilities as internal sources of uniqueness that allows firms to beat the competition
external perspective focuses on the structure of industries and the ways in which firms can position themselves within them for
competitive advantage
dynamic perspective, which bridges the internal and external perspectives, is a third view of competitive advantage; this view helps
explain why competitive advantages do not typically last over long periods of time
Summary of Challenges
1) Understand what strategy is and identify the difference between business-level and corporate-level strategy.
Strategic management is the process by which a firm manages the formulation and implementation of its strategy. A strategy is the central,
integrated, externally oriented concept of how a firm will achieve its objectives. Strategies typically take one of two forms: business strategy or
corporate strategy. The objective of a business strategy is to spell out how the firm plans to compete. This plan integrates choices regarding
arenas (where the firm will be active), vehicles (how it will get there), differentiators (how it will win), staging (the speed and sequence of its
moves), and economic logic (how it obtains its returns). The objective of corporate strategy is to spell out which businesses a firm will compete
in, how ownership by the corporate parent adds value to the business, and how this particular diversification approach helps each business
compete in its respective markets.
2) Understand why we study strategic management.
It should be clear to you by now that strategic management is concerned with firm performance. Strategic management holds clues as to why
firms survive when performance suffers. Strategy helps you to understand which activities are important and why and how a plan, absent good
execution, is perhaps only as valuable as the paper it’s printed on.
3) Understand the relationship between strategy formulation and implementation.
Strategy formulation is the determination of what the firm is going to do; strategy implementation is how the firm goes about doing it. These
two facets of strategy are linked and interdependent. This interdependence is made strikingly clear by the strategic management process.
4) Describe the determinants of competitive advantage.
Competitive advantage is realized when one firm creates value in ways that the competitors cannot, such that the firm clearly performs better
than its competitors. Advantage is not simply higher relative performance; rather, superior performance signals the ability of a firm to do things
in ways it direct competitors cannot. The two primary views of competitive advantage—internal and external—are complementary and together
are used to formulate effective strategies. The internal view portrays competitive advantage to be a function of unique, firm-specific resources
and capabilities. The external view holds that a firm’s performance is largely a function of its position in a particular industry or industry
segment given the overall structure of the industry. Profitable industries are considered attractive, and therefore, high firm performance is
attributed to a firm’s position in the industry relative to the characteristics of the industry or industry segment.
5) Recognize the difference between the fundamental and dynamic views of competitive advantage.
The two fundamental views of competitive advantage are characterized by a largely internal or external orientation toward competitive
advantage, research shows that few firms persist in their dominance over competitors over prolonged periods of time. For most firms, therefore,
competitive advantage is considered to be temporary. The dynamic perspective assumes that a firm’s current market position is not an accurate
predictor of future performance because position itself is not a competitive advantage. Instead, the dynamic perspective looks at the past for
clues about how the firm arrived at its present position and to the future to divine what the new competitive landscape might look like. It also
holds that it’s possible for the firm to influence the future state of the competitive landscape.
Chapter 2
strategic leadership task of managing an overall enterprise and influencing key organizational outcomes
succession planning process of managing a well-planned and well-executed transition from one CEO to the next with positive outcomes for
all key stakeholders
vision simple statement or understanding of what the firm will be in the future
mission declaration of what a firm is and what it stands for—its fundamental values and purpose
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values the principles that are held dear by members of the organization—guiding principles managers and employees will not compromise
while pursuing the vision and strategic goals
strategic goals are those overarching and results that the organization pursues to accomplish its mission and achieve its vision
goals and objectives combination of a broad indication of organizational intentions (goals) and specific, measurable stems (objectives) for
reaching them
return on invested capital (ROIC) how effectively a company uses the money (borrowed or owned) invested in its operations
super-ordinate goal overarching reference point for a host of hierarchical sub-goals
balanced scorecard strategic management support system for measuring vision and strategy against business- and operating-unit-level
performance
interpersonal roles
figurehead—ceremonial
liaison—maintain relationships with external stakeholders
leader—employees and stakeholders look to their authority for motivation and direction
informational roles
sharing information
disseminator—communicate factual information and value-based information
spokesperson—lobbying, public relations and formal reporting
decisional roles
entrepreneur—designs the firms strategy/authorizes initiatives and supervises implementation
disturbance handler—fixer
resource allocator—where the money/people get assigned
negotiator—non-routine transactions
strategic purpose simplified, widely shared mental model of the organization and its future, including anticipated changes in its environment
strategic coherence symmetric co-alignment of the five elements of the firm’s strategy, the congruence of functional-area policies with these
elements, and the overarching fit of various businesses under the corporate umbrella
stakeholder individual or group with interest in firm’s ability to deliver intended results and maintain viability of its products and services
ethnocentrism belief in the superiority of one’s own ethnic group or, more broadly, the conviction that one’s own national, group, or cultural
characteristics are “normal”
stereotyping relying on a conventional or formulaic conception of another group based on some common characteristic
four personality characteristics—locus of control, need for achievement, tolerance for risk or ambiguity, charisma and emotional intelligence
Summary of Challenges
1) Explain how strategic leadership is essential to strategy formulation and implementation.
Strategic leadership is concerned with the management of an overall enterprise and the ways in which top executives influence key
organizational outcomes, such as performance, competitive superiority, innovation, strategic change, and survival. Leaders typically play three
critical roles—interpersonal, informational, and decisional—all of which support the firm’s vision and mission and the implementation of its
strategy. The Level 5 Hierarchy is a model of leadership skills that calls for a wide range of abilities, some of which are hierarchical in nature.
Leaders can be distinguished by personality and demographic differences, and strategic leadership can be exercised either by individuals or
groups.
2) Understand the relationships among vision, mission, values, and strategy.
An organizational vision is a simple forward-looking statement or understanding of what the firm will be in the future. A mission is a
declaration of what a firm is and what it stands for—its fundamental values and purpose. Together, mission and vision statements express the
identity and describe the work of a firm. They also state the firm’s direction. Vision and mission statements support strategy, which provides a
coherent plan for realizing the firm’s vision and mission.
3) Understand the roles of vision and mission in determining strategic purpose and strategic coherence.
Guidance in making decisions is important because there’s only so much complexity in a given problem with which any individual or group can
reasonably cope. Vision and mission statements are thus useful because they inform all employees of the firm’s strategic purpose—a simplified,
widely shared model of the organization and its future, including anticipated changes in its environment. The challenge posed by a defined
strategic purpose is closing the gap between aspirations on the one hand and current capabilities and market positions on the other. Strategic
coherence refers to the symmetrical co-alignment of the five elements of the firm’s strategy, the congruence of functional-area policies with
these elements, and the overarching fit of various businesses under the corporate umbrella.
4) Identify a firm’s stakeholders and explain why such identification is critical to effective strategy formulation and implementation.
Stakeholder analysis improves the understanding of the range and variety of parties who have a vested interest in the formulation and
implementation of a firm’s strategy or some influence on firm performance. The first step in stakeholder analysis is identifying stakeholder
groups that are affected by or that may affect the firm’s strategy. The second step calls for identifying those stakeholders who are important for
strategy formulation and implementation, those for whom the strategy will be important, and those who are influential in determining the
strategy. The third step involves categorizing stakeholders according to their influence in determining strategy versus their importance in its
execution. Stakeholder analysis also helps expose any major omissions in strategy formulation and implementation.
5) Explain how ethics and biases may affect strategic decision making.
Strategic leadership and strategic decision making have much in common. Indeed, strategic leadership can be characterized by strategic decision
making and the actions in which it results. The effectiveness of strategic decision making is threatened when managers act unethically or
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without being fully aware of the biases influencing their judgment. Ethical lapses may reflect an individual shortcoming, but they can often be
traced to a lack of clear organizational mechanisms for making individuals accountable for their actions. Decision-making biases, or threats to
rational decision making in general, result from theories about oneself, theories about one’s world. They may impair both rational and ethical
decision making and even an organization’s ability to realize its vision and mission.
Chapter 3
resources inputs used by firms to create products and services
capabilities a firm’s skill at using its resources to create goods and services; combination of procedures and expertise on which a firm relies
to produce goods and services
value chain total of primary and support value-adding activities by which a firm produces, distributes, and markets a product
outsourcing activity performed for a company by people other than its full-time employees
distinctive competence capability that sets a firm apart from other firms; something that a firm can do which competitors cannot
core competence capability which is central to a firm’s main business operations and which allow it to generate new products and services
VRINE model analytical framework suggesting that a firm with resources and capabilities which are valuable, rare, inimitable, non-
substitutable, and exploitable will gain a competitive advantage
value a resource or capability is valuable if it enables a firm to take advantage of opportunities or to fend off threats in its environment
rarity as scarcity relative to demand; an otherwise valuable resources that isn’t rare won’t necessarily contribute to competitive advantage:
valuable resources that are available to most competitors simply enable a firm to achieve parity with everyone else
inimitability and non-substitutability a valuable and rare resource or capability will grant an advantage only so long as competitors don’t gain
possession of it or find a close substitute; the criterion is satisfied if competitors cannot acquire the valuable and rare resource quickly or if they
face a cost disadvantage in doing so
casual ambiguity difficult to identify or understand certain factors
dynamic capabilities a firm’s ability to modify, reconfigure and upgrade resources and capabilities in order to strategically respond to or
generate environmental changes
outsourcing is simply sourcing the function, product or service of a value chain activity from another country
offshoring is taking that activity from a high-cost country to a low-cost country
exploitability mere possession of or control over a resource or capability is necessary but not sufficient to gain a competitive advantage; a
company’s ability to get the value out of any resource or capability that it may generate
Summary of Challenges
1) Explain the internal context of strategy.
Firms facing similar industry conditions achieve different levels of competitive advantage and performance based on their internal
characteristics and managerial choices. Although firms must always take the external context into account when formulating and implementing
strategy, the internal perspectives stress the differences among firms in terms of the unique resources and capabilities that they own or control.
These perspectives offer important models and analytical tools that will help you to analyze and formulate competitive strategies.
2) Identify a firm’s resources and capabilities and explain their role in its performance.
Resources are either tangible or intangible. Resources and capabilities that help firms establish a competitive advantage and secure higher levels
of performance are those that are valuable, rare, and costly to imitate. The VRINE model helps you analyze resources and capabilities. A
resource or capability is said to be valuable if it enables the firm to exploit opportunities or negate threats in the environment. In addition, the
firm must have complementary organizational capabilities to exploit resources and capabilities that meet these three conditions. Rare resources
enable firms to exploit opportunities or negate threats in ways that those lacking the resource cannot. Competitors will try to find ways to imitate
valuable and rare resources; a firm can generate an enduring competitive advantage if competitors face a cost disadvantage in acquiring or
substituting the resource that is lacking. Unique historical conditions that have led to resource or capability development, time-compression
diseconomies, and casual ambiguity all make imitation more difficult. Firms often use alliances, acquisitions, and substitution with less costly
resources as mechanisms to gain access to difficult-to-imitate resources.
3) Define dynamic capabilities and explain their role in both strategic change and a firm’s performance.
The process of development, accumulation, and possible loss of resources and capabilities is inherently dynamic. The resource-accumulation
process and dynamic capabilities are fundamentally different from the static possession of a stock of resources and capabilities. Dynamic
capabilities are processes that integrate, reconfigure, acquire, or divest resources in order to use the firms’ stocks of resources and capabilities in
new ways. The ability to adapt to changing conditions or to proactively initiate a change in the competitive environment is particularly important
in industries in which time-to-market is critical, technological change is rapid, and future competition is difficult to forecast.
4) Explain how value-chain activities are related to firm performance and competitive advantage.
Firms produce products or offer services by engaging in many activities. The basic structure of firm activities is illustrated by the firm’s value
chain. The value chain is divided into primary and support activities. One way a company can outperform rivals is to find ways to perform some
value-chain activities better than its rivals or to find different ways to perform the activities altogether. Selective outsourcing of some value-
chain activities is one way to perform activities differently. Competitive advantage through strategic configuration of value-chain activities only
comes about if the firm can either deliver greater value than rivals or deliver comparable value at lower cost. The essence of the activity-based
value-chain perspective of competitive advantage is to choose value-chain activities that are different from those of rivals and to configure these
activities in a way that are internally consistent and that requires significant trade-offs should a competitor want to imitate them.
5) Explain the root of managers with respect to resources, capabilities, and value-chain activities.
Managers make decisions about how to employ resources in the formulation and implementation of strategy. Managers are the decision agents
who put into motion the use of all other firm resources and capabilities; they are key to the success of a firm’s strategy. Managers with specific
experiences and backgrounds may be more qualified to work with a specific bundle of resources owned by a firm. The influence of managers is
more pronounced in contexts such as entrepreneurial phases, turnarounds, and competitive turmoil.
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Document Summary

1. arenas where will we be active: vehicles how will we get there, differentiators how will we win in the marketplace. Summary of challenges: understand what strategy is and identify the difference between business-level and corporate-level strategy. Strategic management is the process by which a firm manages the formulation and implementation of its strategy. A strategy is the central, integrated, externally oriented concept of how a firm will achieve its objectives. Strategies typically take one of two forms: business strategy or corporate strategy. The objective of a business strategy is to spell out how the firm plans to compete. This plan integrates choices regarding arenas (where the firm will be active), vehicles (how it will get there), differentiators (how it will win), staging (the speed and sequence of its moves), and economic logic (how it obtains its returns). It should be clear to you by now that strategic management is concerned with firm performance.

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