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Midterm

BU 481 midterm.docx

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Department
Business
Course
BU481
Professor
Pat Lemieux
Semester
Fall

Description
Technical Set 1 1. Define and describe the balance scorecard tool and its elements. How does the underlying concept of leading and lagging indicators apply to the GM‟s objective of assessing performance? What insights (2) does this tool provide to a GM within the context of assessing performance? A strategic mgmt tool, customized to your organization. Not a way to formulate a strategy. Measuring how you implement your strategy. The elements are: Financial (Revenue growth, cost mgmt., asset utilization), Internal Business Processes (quality, productivity, delivery, after sales services), Innovation and Learning (employee capabilities, information technology, motivation, alignment), and Customers (markets share, customer retention, customer acquisition, customer sat, customer profitability). A leading indicator (innovation and learning) will give a headsup to what is coming and a lagging indicator (financials) is an event that has already happened. A GM can use lagging indicator to predict future performances, leading indicators can focus on what needs to be done going forward, leading indicators make performance management more strategic and boost enterprise responsiveness to economic change. the 2 insignts that enables managers to provide consistency between the aims of the organization and the strategies undertaken to achieve those aims. The Financial Perspective covers the financial objectives of an organization and allows managers to track financial success and shareholder value. The Customer Perspective covers the customer objectives such as customer satisfaction, market share goals as well as product and service attributes. The Internal Process Perspective covers internal operational goals and outlines the key processes necessary to deliver the customer objectives. The Learning and Growth Perspective covers the intangible drivers of future success such as human capital, organizational capital and information capital including skills, training, organizational culture, leadership, systems, and databases. 2. Discuss and describe in details the measures that make up the two axes of the Performance Matrix. Why should the health of the organization be assessed as part of the GM‟s function of assessing a firm‟s performance? What insights (2) does this tool provide to a GM within the context of assessing performance? Organizational Health - generally softer more qualitative than operating performance. Includes such things as management and worker enthusiasm, the ability to work across boundaries and the ability of the organization to learn Operating performance - includes the “hard” or more quantitative measure of financial and market performance (profitability, financial position, market performance) The health of the organization should be assessed because selection and staffing impacted employee satisfaction which in turn affected the value employees were able to add to the business. The 2 insights are what the firm‟s current state is at and what needs to be done in order to achieve a desired state. 3. What are two advantages when a firm has a clear vision/ mission? What are two characteristic of a good vision/ mission? What are the main implication of a clear vision/ mission on a firm strategy formulation process and execution? Vision: to bring coherence to the many strategic and operating decision that managers at all levels are constantly called upon to make 
 Adv: 
 - can resolve confusion over the purpose of the business - brings coherence to the many strategic and operating decisions 2 good characteristics: - long-term - enduring - inspirational w The implications of a clear vision/mission is that ia provides a guiding philosophy that, in the context of expected future environments, leads to a tangible image. Technical Set 2 1. Please define the concept of Value Proposition. Why this concept is considered a key component of strategy? What is the relationship of the value proposition to the other components of business strategy? Please describe those elements. Provide an example of a company discussed in class or the text book that leveraged its value proposition to gain competitive advantage. Value Proposition is a statement of the fundamental benefit of benefits that it has chosen to “offer” in the marketplace. Vp is considered a key component of strategy because it is a way for businesses to differentiate their products from competitors to create a competitive advantage Strategy provides a vehicle for you to translate general ideas about direction and performance. The value proposition provides a beacon for employees everywhere, illuminating specifically what the business is trying to do for its customers and, by inference, the requirements of their particular role Goals set up the targets against which progress and performance can be assessed. Product market focus provides critical direction to people throughout the business so that they can focus their effort on targeted markets and products, just as importantly, avoid wasting their time on tangential opportunities. Core activities highlights the key jobs that will have to be done and the capabilities that need most to be developed and reinforced. Competitive Adv: The warehouse retailer Costco competes by offering customers low unit prices on “quantity” purchases of food and general merchandise items. The price advantage is important to small commercial customers and to householders with the cash and storage capacity to put items into “inventory. T”. The prices are hard for competitors to match so long as they incur the costs associated with smaller package and lot sizes that many customers want 2. Please define and describe the concepts of “Value proposition” and “Competitive Advantage” within the of “Business Strategy” framework. It is said that “the value proposition is key” to strategy assessment and formulation. Do you agree or disagree with this statement and why? What is the business implication for a firm that has a competitive advantage versus one that does not have one? Value Proposition: is a statement of the fundamental benefit of benefits that it has chosen to “offer” in the marketplace. 
 
 Competitive Advantage: the strategic advantage one business entity has over its rival entities within its competitive industry I agree because value propositions is considered a key component of strategy as it is a way for businesses to differentiate their products from competitors to create a competitive advantage A firm with competitive advantage will be more sustainable. 3. Within the Business Strategy framework, please define and describe core activities. Please contrast core activities versus all other activities that a firm is performing. Which type of activities should a GM focus on and why? Please provide a relevant example covered in your text book or discussed in class Core activities: critical to the effective operation of the business. These activities will have a fundamental impact on its market and operations control, cost structure, capabilities and flexibility by creating competitive advantage as defined by the company‟s value proposition A GM should focus on core activities because it can lead a company to obtaining competitive advantage. For example, core activities of walmart, integrated logistics: contractor to checkout, intensely managed, local tailoring have lead to their success. 4. Please define and describe each step of the business strategy assessment process. For each step please explain the rationale behind it. Business strategy Assessment steps: 1. Do the four elements complements and reinforce each other ? Value proposition, goals, core activities, product market focus Product market focus Market Product existing new existing Market penetration Product development new Market development Diversification Goals HARD GOALS PROFITABILITY - ROS, - ROCE, - ROE MARKET POSITION - Rank by: Sales, Assets - Market share - Proportion of new products GROWTH - Increase in: Sales, Assets, Earnings - Growth in Earnings Per Share (EPS) RISK - Financial risk - Operating risk SOFT GOALS MANAGEMENT - Autonomy - Status EMPLOYEES - Economic security - Advancement opportunities - Working conditions COMMUNITY (local) - Contribution to community - Control of externalities SOCIETY (broad) - Benefits of innovation - Contribution to political stability and representation Value proposition A product/service attribute is an element of the value proposition when it is: - valued by customer in the target market - differentiator – set a product or service apart from the competition - competitive advantage is value proposition that is - important (distinguish between valued and important) - Hard to copy Core activities - Activities within the firm that add value o contributes directly to the value proposition o need to distinguish between necessary activities and those that add value 2. Does the value proposition resonate in the target market? 3. Does the Business Strategy fits with the other elements of the business ? Organization, Resources, Management Preference and Environment. Technical Set 3 1. Please define and describe the “focus” generic / strategic path. What tradeoffs is a GM making when deciding to follow a focus strategy versus a costs leadership or differentiation? What is a key strategic benefit for a GM in following a focus generic path? Please provide an example covered in class, in the text book or article related to a firm following a “focus” generic path. Focus generic: A marketing strategy in which a company concentrates its resources on entering or expanding in a narrow market or industry segment.  The focus generic strategy deals with a particular buyer group, segment of the product line, or geographic market. The difference between a focus strategy compared with a low cost leadership and differentiation is the who they market to. The low cost leadership and differentiation strategies are achieving objectives at an entire industry level while the focus strategy relies on serving the narrow target more effectively (differentiation) and efficiently (low cost) than companies on a broad market.  The tradeoffs a GM makes when deciding to follow focus vs. a low cost leadership or differentiation:  The tradeoffs when dealing with a focused strategy is between profitability and sales volume. This is because a focus strategy will have limitations on the amount of market share they gain because a focus strategy only wants part of the entire market. Though they can still be profitable, the sales volume is limited to a certain target market.  Key Strategic Benefit for a GM in following a focus path:  With a focused strategy, they can have low cost leadership, high differentiation, or even both. Both positions provide defences against each competitive force. Focus may also be used to select targets least vulnerable to substitutes or where competitors are the weakest. This way, firms can be profitable in the limited market share they capture.  Example of a firm following a focus strategy:  Focus low cost - Martin Brower - third largest food distributor in the US has reduced their customer list to just 8 leading fast food chains. Their entire strategy is to meet specialized needs of the customers, stocking only their narrow product lines, order taking, and they locate their warehouses based on the customers‟ locations. Though they do not provide low cost to the industry as a while, they provide low costs for their specific segment. 2. Please define and describe the “differentiation” generic / strategic path. What tradeoffs is a GM making when deciding to follow a differentiation strategy versus a costs leadership or focus? What are two key requirements for a firm following a differentiation strategy? Please provide an example covered in class, in the text book or article related to a firm following a “differentiation “generic path. A differentiation strategic path is broadly defined to include anything such as service, quality or features that sets a product or service apart from competitors. If GM follows differentiation strategy the tradeoff will be that of operational efficiency for margins volume for exclusivity  The differentiation strategy focuses on creating a product or service that is perceived to be unique industry wide. Firms differentiate along a variety of dimensions which are valued by the consumer. Some dimensions include design, brand image, and technology. Ideally, they will differentiate among several dimensions. Differentiation creates a defense against rivals because of brand loyalty which lowers the sensitivity of price from consumers.  The tradeoffs a GM makes when deciding to follow differentiation vs. a low cost leadership or a focus: o When dealing with a differentiation strategy, the tradeoff is the low cost position. Through brand loyalty, margins will increase which will allow the firm to avoid a need for low cost positioning. Achieving differentiation will imply a tradeoff with cost because it requires high costs like extensive research, product design, high quality materials, and intensive customer support which cannot support a low cost leadership. Also, differentiation may prelude gaining a high market share. This is because differentiation requires a perception of exclusivity which is incompatible with high market share.  The two key requirements for a firm to follow a differentiation strategy: o Firms following a differentiation strategy cannot ignore costs. o Need to differentiate among several dimensions  Example of Differentiation: o Starbucks/ Apple 3. Please define and describe the “cost leadership” generic / strategic path. What tradeoffs is a GM making when deciding to follow a cost leadership strategy versus a differentiation or focus? What are two key requirements for a firm following a cost leadership strategy? Please provide an example covered in class, in the text book or article related to a firm following a “cost leadership“ generic path.  Cost leadership is the ability to have control over a firm‟s cost. This can be achieved by aggressive construction of efficient scale facilities, cost reductions, and tight cost and overhead control. Having a low cost position will provide the firm with above average returns and higher margins. Achieving this position often requires a relatively high market share and other advantages like easy access to raw materials. A low overall cost position can be achieved through various ways: o when products are easy to manufacture (economies of scale) o maintaining a wide line of products to spread costs (economies of scope)  The tradeoffs a GM makes when deciding to follow a cost leadership vs. a differentiation or a focus: o When dealing with a low cost leadership strategy, the tradeoff is a unique position. Since there is heavy focus and investment in equipment to create economies of scale, there is less focus on investing in extensive research, product design, high quality materials, and intensive customer support. This is because low cost firms are always reinvesting their capital to create economies of scale.  The two key requirements for a firm to follow a cost leadership strategy: o Sustained capital investment and access to capital - invest in heavy upfront capital investment in state of the art equipment. Start up losses will help build market share. High market share may in turn allow economies in purchasing which lower costs even further. Once high margins are achieved through economies of scale/scope, it can be reinvested in new equipment and facilities in order to maintain cost leadership. o Need economies of scale or cost advantages. This is important in order to create entry barriers. With this, there must be a lot of attention from the managers to control these costs.  Example of a firm following a cost leadership strategy: o From the article: Harnischfeger which was a crane manufacturer redesigned its cranes so they were easy to manufacture and service. They reduced the material needed and used modernized components. They also establised a conveyorized assembly line while ordering large volumes to save cost. All this allowed them to offer acceptable quality product while dropping prices which led to an increase in market share. Technical Test 4 1. Define and describe the PEST analysis tool. What insight/ knowledge should a GM expect from a PEST analysis? How could the General Manager make effective use of this knowledge as part of strategy review and / or formulation? Pest analysis stands for political, economic, social and technological forces that impact the industry Pest impacts supply, competition and demand Assess the forces that determine the context within which the industry operates. - sources of further change in the industry; these changes will lead to changes for all businesses in the industry PEST analysis stands for political, economic, social, and technological forces that impact the industry. These forces can be viewed as more macro in orientation than P5FM, and in many respects are early warning signals about changes in the industry. The PEST forces impact supply, competition, and demand, but it is helpful to think about how the PEST forces impact each element of the value chain. For example, demographics can be used to assess demand many years in advance, as used in the building of schools. Overall, the PEST forces can provide a long lead time in their evolution or development, but their final outcome or impact of the forces may be less than precise. As a result of the uncertainty in any industry, it is important not to ignore or remove that uncertainty, but rather to incorporate it into the analysis. The aim in reviewing the PEST trends is to ID broad forces and basic changes in the total environment of a business. 2. Define and describe the concepts forward integration and backward integration. What knowledge / insights can it provide to general managers? How can the General Manager leverage this knowledge to his / her advantage? Please provide an example of this concept covered in class, in the text book or in the article. Forward integration is A business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products. Music Create music- record label- whole sale- distributor- retailer | ------1/1.5----------------------------------------------------------------| $20 itunes cuts all the activities that do not create value and go directly to the customer Backward integration - A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it will result in improved efficiency and cost savings. For example, backward integration might cut transportation costs, improve profit margins and make the firm more competitive. 3. Define, describe the value system. What insight / knowledge can the value system analysis provide? How best should the General Manager make best use of this knowledge / insight as part of strategy review and / or formulation? Please provide an example of this concept covered in class, in the text book or in the article. Value system - A chain of activities / steps that links raw materials through to the final product being delivered. n Objective is to add value at each step. Each activity in the chain has revenues, costs and profits A firm performs a limited number of activities in the value system. Itunes with forward integration 4. Define and describe in details the value chain. What insight / knowledge can the value chain analysis provide? How best should the General Manager make use of this knowledge / insight as part of strategy review and / or formulation? Value Chain: where value is created; which activities although necessary, do not contribute to value creation Primary activities: - Inbound logistics - Operations - Outbound logistics - Marketing and sales - Service Support activities: - Can provide insight on the forces pushing against the margins (porters). Analyze porters forces to assess industry attractiveness. Focus on the activities in the value chain that are core activities to maximize profitability - the value created by a system and chain are measured y what the customer/ end user pays - this values covers all costs and provides all profits to those in the chain - different chains may create different value  The organizational value chain is the primary activities selected from the industry‟s value chain (which includes all activities from raw materials to sale to the final customer and disposal) that have been integrated into the structure of an organization. The value chain can also be divided into the primary activities (inbound/outbound logistics, operations, marketing/sales, service) and supporting activities (firm infrastructure, human resource management, technology department, and procurement) The fundamental principle is that these activities (primary and support) contribute to both a firm‟s costs and the ability to deliver value to its customers. The value created minus the costs dictate the margin. Each activity can also be broken down to see where the value can be added. Companies will often seek to lower costs which will then increase a customer‟s willingness to pay.  Insights on value chain analysis: o Value chain analysis can identify where and why customers are willing to pay less, identifying where value is being eroded in an industry (ex. music industry - illegal/free downloads). o The value chain can help identify strengths and weaknesses of the chain (what needs to be changed for maximum effectiveness and efficiency)  General Managers: o General Managers can use these insights to understand the chain at both the firm and industry levels. There is a certain value chain that an industry will hold and a manager can choose to perform or outsource the different activities within the value chain. The manager can choose to give more or less emphasis to certain activities in the value chain that aligns with the firm‟s core activities which may vary from a competitor in the same industry. This will allow the manager understand how to create a strategy for how they will compete in their industries. Another way a manager can use this information is on an industry level. By understanding the power of suppliers and buyers across the chain, the associated competitive rivals, barriers to entry and substitutes products at each stage, it is possible to identify which parts of the chain are attractive which can help when formulating a strategy.  Example of the Value System: o Wal-Mart shows an example of support activities that add value to the supply chain which help increase margins to help with Wal-marts low cost leadership. In this case, the support activities like technology has helped create value all along the chain. They have been able to reduce costs through effective inventory management. Wal-mart has the ability to forecast customer needs, while providing real time tracking of in stock inventory, a direct link to suppliers to replenish stock, and the capacity to manage its massive distribution centers to deploy its fleet of trucks. 5. Mitchell, Agle and Wood, as discussed in the course text, classify company stakeholders according to three dimensions. Identify and describe these three dimensions. How should a General Manager best use the insight/ knowledge generated by this tool.? Low salience Power – dormant shareholder Legitimacy – discretionary shareholder Urgency – demanding shareholder Moderate salience Power and Legitimacy- dominant shareholder Power and urgency – Dangerous stakeholder Legitimacy and urgency – Dependent stakeholder High salience Power legitimacy and control – definitive stakeholder The main reason to identify all of the stakeholders into their dimensions is so they can properly assess the benefits but also the risks that can be potentially used against the firm. This allows the firm to act appropriately with different stakeholders for the firms benefit. 6. Please describe and contrast the “Red” versus the “Blue” ocean concepts. Which concepts / frameworks would provide relevant insight and knowledge to help ensure a General Manager competes in a “Blue Ocean” What are the business implications of competing in a “Red” versus a “Blue” ocean ? - Firms employing a blue ocean strategy are deliberately redefining existing industry boundaries and created uncontested market spaces as a source of competitive advantage (ex. the circus industry was declining because of high supplier and buyer power with many alternative entertainment options. Cirque du Soleil can in and made competition irrelevant by creating and capturing new demand for a unique experience). Differentiation and low cost - Firms employing a red ocean strategy are in existing markets focusing on existing customers. Called red ocean because once the market is crowded it becomes cut throat competition. Differentiation or low cost - Competing in a red ocean reduces margins therefore reduced profits 7. Focusing your environmental analysis makes for an efficient process and provides key insights. However, these benefits are only recognized at the risk of strategic myopia. Describe the concept of strategic myopia. Please identify one potential negative consequence of a General Manager's myopic during strategy review and / or formulation. Provide at least two ways this risk can be reduced during your environmental analysis. : The benefits of focus are possible only at the risk of what is called strategic myopia. If your focus is too specific, you might miss the emergence of a new market opportunity, or the arrival of unconventional competition. Similarly, if you concentrate overly on a particular time horizon you may get blindsided by events that lie just beyond the limit. The risks of focus can be reduced, however, by ensuring that your analysis is accompanied by continuous macro environment scanning, and that the analysis is recycled as it proceeds, to incorporate the redefinition, as necessary, of both the relevant environment and questions being addressed. Macroenvironment scanning – a concurrent awareness of the events and institutions surrounding the relevant business environment. It is issue-seeking, continuously informal, fundamentally based on social, economic and technical trends, and attempts to ID events of potential impact on the business. Recycling – ensuring the analytic process stays open, ie. that you are prepared to incorporate new information and to double back or recycle your work as the need arises. Difficult to follow in practice because of the reluctance to complete additional analysis; fight this tendency or you will lose the important benefits of learning about new possibilities as the work develops 8. One model used to assess the strategy-environment linkage is the Business Environment Analysis Model. (BEAM) Define and describe the four components of the model, how and when it should be used. How does it compare to the Porter 5 forces model? The BEAM model consists of 4 categories: demand, supply, competition, and government. The model is not intended to supplant other environmental analysis models, rather it is a starting point to conduct the environmental analysis. The model is similar to the P5FM but examines microprocesses of industry analysis more closely. Demand: It is particularly important for you to gauge the degree to which a strategic proposal incorporates 1) the needs and preferences of current and potential customers, 2) the scale and timing of market development, and 3) the bargaining power of customers. Supply: Consider the possibilities in the matching or mismatching of strategy with 1) technology, 2) supplier competence and bargaining power, 3) competition for raw materials and people. Competition: The test of the linkage of a strategic proposal and competition is in whether it pursues the competitive opportunities and offsets competitive challenges and vulnerabilities relative to 1) aggregate competitive conditions and their impact on market attractiveness, and 2) the specific strategies of individual competitors. Government: Consider the importance of strategy of correctly anticipating 1) government support, 2) changing trade policy, and 3) regulatory compliance. 9. Please identify and describe three (3) insights / knowledge that a GM seeks to acquire when he/she analyze the industry structure in which his/ her firm is competing in. How should the GM best apply these insights / knowledge while enhancing the current strategy or formulating a new strategy? There are three tools that are useful in achieving a focused and properly timed environment analysis. The first tool is your assessment of the performance of the business which can help you to set an appropriate time horizon for environment analysis and to indicate the range, detail and depth of study that suits the situation at hand. A strong performance record suggests a good fit between strategy and environment. For a business in crisis your environment analysis will have to be as immediate, tangible, and detailed as possible. The second tool is the strategic proposal that you are considering, which helps to identify the relevant business environment and the specific conditions on which the analysis should focus. Strategic goals establish the performance priorities and expectations that need to be evaluated in your environment analysis. If the strategic goal of a company was high revenue growth targets, then the firm would need to know the growth potential in the served market and the possibility of increasing market share. The product market focus sets up a bounded environment for the analysis of demand and competition. A proposal to enter a new geographic territory, for example, gives you a specific target area for pursuing questions of demand and competition. A proposal‟s value proposition defines a very tangible benchmark for testing customer appeal and competitive differentiation. The nature and structure of a proposal‟s core activities provide a basis for identifying the cost, control, and flexibility trade-offs that would be sensitive to external trends and developments. The third tool is the profit model, which consists of revenues, costs, profits, and investments. You can develop the profit model for a current strategy from the actual performance records of the business. For new proposals you can develop a profit model from the structure of goals and core activities. It is important to distinguish between variable costs and fixed costs. 10. Please define the "switching costs" concept within the context of the 5 forces model. Please describe how switching cost affect each one of the following forces: Substitutes, Buyers, Suppliers, and Threat of Entry? Please provide an example in your textbook, articles or discussed in class that relates to the concept. The negative costs that a consumer incurs as a result of changing suppliers, brands or products. Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time-based switching costs. Sustainable companies usually try to employ strategies that incur some sort of high cost in order to dissuade customers from switching to a competitor's product, brand or services. For example, many cellular phone carriers charge very high cancellation fees for canceling a contract. Cell phone carriers do this in hopes that the costs involved with switching to another carrier will be high enough to prevent their customers from doing so. 11. What strategic options (3) exist for a General Manager when the industry he/she is competing in is experiencing high power of suppliers, high threat of entry and low rivalry? Please provide an example in your textbook, articles or discussed in class that relates to one of more of these options. - Suppliers can build strategies to link their customers into their unique capabilities o This will lower the strength of buyers as it forces them to work exclusively with your company, as you offer a unique product that - Spread the risk of individual projects by maintaining a broad portfolio of contracts and customers o This is self explanatory; if one particular buyer accounts for a large percentage of your sales, that buyer will have significant influence on price negotiations. Therefore, whenever possible companies should try to refrain from „putting all its eggs in one basket‟  Ex. When inexpensive music became widely available via the internet, the music industry took a big hit - Use a focus strategy (either differentiation or cost leadership) o A great way to negate buyer power is to offer something that they need that is not offered by competitors; this will in effect also lower the threat of entry as you will gain brand loyal customers while creating barriers to entry for new firms to enter the market  Wal-Mart is an example of this. Wal-Mart uses cost leadership to appeal to consumers (it can be argued that all consumers have considerable buying power; as there is an unlimited number of options available to them for purchasing choices) by offering the lowest prices available, and at the same time the company sets barriers to entry
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