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33:620:301 (46)
Midterm

Exam 1 Review

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Department
Management
Course
33:620:301
Professor
dennishamilton
Semester
Fall

Description
Topic 2A: What is Strategy? - 1. o Acompany’s strategy is its action plan for outperforming its competitors and achieving superior profitability  What is our present situation? • Business environment and industry conditions • Firms financial and competitive capabilities  Where do we want to go from here? • Creating a vision for the firms future direction  How are we going to get there? • Crafting an action plan that will get us there - 2. Strategy’s value o CompetitiveAdvantage: meeting customer needs more effectively, with products or services that customers value more highly, or more efficiently, at lower cost. o Sustainable competitive advantage: Giving buyers lasting reasons to prefer a firms products or services over those of its competitors. - 3. StrategicApproaches o Striving to become the industry’s low-cost provider (efficiency) o Outcompeting rivals on differentiating features (effectiveness) o Focusing on better serving a niche market’s needs (efficiency and/or effectiveness o Offering the lowest (best) prices for differentiated goods (best-cost provider) - 4. Why Strategy Evolves o Managers modify strategy in response to environmental and market changes o Proactive Strategy Elements (Deliberate Strategy): New planned initiatives plus ongoing strategy elements continued from prior periods o Reactive Strategy Elements (Emergent Strategy): New strategy elements that emerge as managers react adaptively to changing circumstances - 5. Business Model Importance o How the business will make money:  By providing customers with value. • The firm’s customer value proposition  By generating revenues sufficient to cover costs and produce attractive profits. • The firm’s profit formula o The Customer Value Proposition  The greater the value provided (V) and the lower the price (P), the more attractive the value proposition is to customers o The Profit Formula:  The lower the costs (C) for a given customer value proposition (V-P), the greater the ability of the business model to be a moneymaker • C = the firms costs - 6. How to test a Strategy o The Strategic Fit Test: How well does the strategy fit the company’s current situation?  External fit – in sync with prevailing market conditions  Internal fit – compatible with a company’s ability to execute the strategy in a competent manner  Dynamic fit – evolve over time in a manner that maintains close and effective alignment with the company’s situation even as eternal; and internal conditions change o The CompetitiveAdvantage Test: Can the strategy help the company achieve a sustainable competitive advantage? o The Performance Test: Can it produce good performance?  Profitability  Market Standing  Competitive Strengths Topic 2B: The Strategy Process The 5 Stages of the Strategy Process: - 1. Vision, Mission, & Values o Developing a Strategic Vision:  Describes management’s future objectives for the business to its stakeholders.  Provides direction – “where are we going”  Sets out the compelling motivation (strategic soundness) for the firm’s direction  Uses distinctive and specific language to set the firm apart from its rivals o The Mission Statement:  Uses specific language to give the firm its own unique identity  Describes the firm’s current business and purpose – “who we are, what we do, and why we are here”  Should focus on describing the company’s business, not on “making a profit” – earning a profit is an objective not a mission o Core Values  Are the beliefs, traits, and behavioral norms that employees are expected to display in conducting the firm’s business and in pursuing its strategic vision and mission  Become an integral part of the firm’s culture and what makes it tick when strongly adopted and supported by top management  Matched with the firm’s vision, mission, and strategy contributes to the firm’s success - 2. Setting Objectives o The purpose of setting objectives:  To convert the vision and mission into specific, measurable, timely performance targets  To focus efforts and align actions throughout the organization  To serve as yardsticks for tracking a firms performance and progress  To provide motivation and inspire employees to greater levels of effort o Setting Stretch objectives promotes better company 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 complacent coasting and easy achievement of ho-hum performance outcomes o Acompany exhibits Strategic Intent when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective o Short-Term Objectives: focus attention on quarterly and annual performance improvements to satisfy near-term shareholder expectations o Long-Term Objectives: Forces consideration of what to do now to achieve optimal long-term performance; stand as a barrier to an undue focus on short-term results - 3. Crafting Strategy toAchieve Objectives o All managers have a strategy-making role-ranging from major to minor-for the area they head o Corporate Strategy:  Orchestrated by the CEO and other senior executives  How to gain advantage from managing a set of businesses o Business Strategy  Orchestrated by the general managers of each of the company’s different lines of business  How to gain and sustain a competitive advantage for a single line of business o FunctionalArea Strategies  Orchestrated by the heads of major functional activities with a particular business  How to manage a particular activity within a business in ways that support the business strategy o Operating Strategies  Orchestrated by managers  How to manage activities of strategic significance within each functional area, adding detail and completeness o Strategic Plan: lays out its future direction and business purpose, performance targets, and strategy  It’s strategic vision, business mission, and core values  Its strategic and financial objectives  Its chosen strategy - 4. Executing the Strategy o Managing the strategy Executing Process:  Installing information and operating systems that enable effective and efficient performance  Motivating people and tying rewards and incentives directly to the achievement of performance objectives  Creating a company culture and work climate conducive to successful strategy execution  Exerting the internal leadership needed to propel implementation forward and drive continuous improvement of the strategy execution processes - 5, Monitoring and Adjusting o Evaluating Performance: deciding whether the enterprise is passing the three tests of a winning strategy o Initiating CorrectiveAdjustments: deciding whether to continue or change the firm’s vision and mission, objectives, strategy, and/or strategy execution methods. Topic 3A: External & InternalAnalysis - The 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 - PESTELAnalysis: focuses on principal components of strategic significance in the macro-environment: o Political Factors o Economic conditions o Sociocultural forces o Technological factors o Environmental factors o Legal/regulatory conditions - External Analysis: o How Strong are the industry’s competitive forces?  The Five Competitive Forces (Porter): • Competition from rival sellers • Competition from potential new entrants • Competition from procedures of substitute products • Supplier bargaining power • Customer bargaining power o Evaluating Driving Forces o How are industry Rivals positioned in the market?  Strategic Group o What Strategic Moves are rivals likely to make next?  Competitive Intelligence – information about rivals that is useful in anticipating their next strategic moves o What are the industry’s key success factors?  Key Success Factors (KSFs) • Are the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an industry o Is the industry outlook conducive to good profitability?  The anticipated industry environment is fundamentally attractive if it presents a company with good opportunity for above-average profitability - InternalAnalysis: o How well is the firm’s present strategy working?  Best indicators of a well-conceived, well-executed strategy: • The firm is achieving its stated financial and strategic objectives • The firm is an above-average industry performer o What are the firm’s competitively important resources and capabilities?  CompetitiveAssets: • Are the firms resources and capabilities • Are the determinants of its competitiveness and ability to succeed in the market place  Testing the competitive power of its resources and capabilities: • Is the resource competitively valuable? • Is the resource rare/ something rivals lack? • Is the resource hard to copy? • Is the resource invulnerable to threat of substitution from different types of resources and capabilities o Is the company able to seize market opportunities and nullify external threats?  SWOTAnalysis: is a powerful tool for sizing up a firm’s • Internal strengths (the basis for strategy) • Internal weaknesses(deficient capabilities) • Market Opportunities (strategic objectives) • External threats (strategic defenses) o Are the company’s cost structure and customer value proposition competitive?  The Value Chain • Identifies the primary internal activities that create and deliver customer value and the necessary related support activities • Permits a deep look at the firm’s costs structure and ability to offer low prices • Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices o Is the firm competitively stronger or weaker than key rivals?  Assessing the firm’s overall competitive strength: • How does the firm rank relative to competitors on each of the important factors that determine market success? Topic 3B: Crafting and Implementing Strategy - The Five Generic Competitive Strategies o Low-Cost Provider: Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers.  Effective Low-CostApproaches: • Pursue cost-savings that are difficult to imitate • Avoid reducing product quality to unacceptable levels o Broad Differentiation: Differentiating the firms product offering from rivals’ with attributes that appeal to a broad spectrum of buyers o Focused Low-Cost: Concentrating on a narrow price-sensitive buyer segment and on costs to offer a lower-priced product o Focused Differentiation: Concentrating on a narrow buyers segment by meeting specific tastes and requirements of niche members o Best-Cost Provider: giving customer more value or the money by offering upscale product attributes at a lower cost than rivals Topic 4A: Organization Design Described/Defined - Organizational Design: the process by which managers create a specific type of organizational structure and culture so that a company can operate in the most efficient and effective way - What is organizational Design? o Organization design determines HOW employees will work together with other resources by:  Laying out the flows of information  Specifying necessary interactions and collaborations  Defining authority and responsibility  Providing everyone with knowledge of his/her role in the value creation process, what they are expected to do, with whom they work with, to whom they go for resources and support Organization Design is a 4 step Process - Step 1: grouping tasks into jobs, design productive and meaningful jobs o The Job Characteristics Model  Skill Variety: job requires employee to use a wide range of different skills, abilities, knowledge  Task Identity: job requires employee to perform all tasks from beginning to end  Task Significance: worker feel that job is meaningful because can see its positive effects on others  Autonomy: job gives employee freedom and discretion to schedule tasks and decide how to do them  Feedback: employee receives clear, direct information on how well they are performing job o T-Shaped Jobs: experts in a discipline PLUS intimately acquainted with the potential systemic impact of their tasks in interaction with other specialties Topic 4B: Step 2: Grouping jobs into work units or departments, functions, division - Organizational Structure: a formal system of task and reporting relationships that coordinates and motivates organizational members so they work together to achieve organizational goals - Key considerations in Designing Structures o Critical flows of information/knowledge are enabled/supported o Key individuals are able to effectively interact routinely and spontaneously with each other to create value o There is clarity of responsibility and authority o Each individuals role is clear in the context of the overall organizations vision, mission, and goals o Each individuals connection to the organization is meaningful - Grouping Jobs: Structural Models o Functional structures: an organizational structure composed of all the departments that an organization requires to produce its goods or services  How does information flow in this structure? Mostly between members of the function and up and down the hierarchy  What are the necessary interactions between individuals that are implied by this structure? Primarily inter-functional  Who is in charge (authority)? Head of the function  What are the most important responsibilities in this structure? Functional tasks, developing functional excellence  What key roles do individuals have in this structure? Assigned tasks, maintaining functi
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