Exam 1 Study Guide

MGMT 449 Study Guide for Exam I Background/Chap. 1 1)      Where did the idea of Strategic Management come from? - War What were some of the important influences on Strategic Management? - Military Influences - “Strategos” referred to a general in command of the army - War times - Academic Influences - Recent Influences 2)      Strategy: management’s action plan for growing the business, staking out a market position, attracting and pleasing customers, competing successfully, conducting operations, and achieving targeted objectives - most often doesn’t specify particular action - defines a framework for guiding the choice of action What makes a strategy a winner? 1. Must fit company’s external and internal situation 2. Builds sustainable competitive advantage 3. Improves company performance Strategic Management Process: The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns Value Creation: What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate. Strategic Planning: lays out company’s future direction, performance targets, and strategy = strategic vision + objectives + strategy Strategic Thinking Business Model: explains the rationale for why its business approach and strategy will be a moneymaker – how it will deliver value to the customer and be profitable 3)      Why is Strategy important? 1. There is a compelling need for managers to proactively shape, or craft how the company’s business will be conducted 2. Strategy-focused enterprise is more likely to be a strong bottom-line performer than a company whose management views strategy as secondary and puts it priorities elsewhere What are key components of a Strategy? 1. Actions in the marketplace 2. Statements of senior managers about company’s current business approaches What to look for – actions to: - diversify company - strengthen competitive capabilities - manage R&D, production, sales, mktg, finance, etc. - strengthen competitiveness with partnerships/alliances - merge with other companies - capture emerging market opportunities - enter new geographic product markets - respond to changing market conditions - gain sales and market share 4)      What are the tasks of Strategic Management? Who is involved in Strategic Management? In developing a strategy CEO, CFO, senior executives, VP of HR, marketing, and production – flawed thinking, but in most organization every manager has some influence and most of the times, crafting and executing a strategy is a team effort. 5 Phases of making and executing strategy: 1. develop strategic vision 2. setting objectives 3. crafting strategy to achieve objectives 4. implementing and executing 5. evaluating performance and initiating corrective adjustments 5)      What is meant by “crafting” a strategy? Managerial commitment to pursue a particular set of actions in growing the business, attracting and pleasing customers, competing successfully, conducting operations, and improving the company’s financial and market performance - is a work in progress since the company’s strategy evolves over time due to ongoing mgmt efforts to improve the strategy and changing circumstances Crafting and executing a strategy are core management functions. Vision/Mission/Goals/Chap. 2 6)      Strategic Vision: deciding where the company should “go,” creating a road map of the future, deciding future business position to stake out, providing long term direction, giving firm a strong identity Mission Statement: focuses on current business activities, who we are, what we do, why are we here? Why are they important? 7)      What are the characteristics/components of a good strategic vision: - charts a company’s future course - defines business make up for 5 years - specifies future technology-product-customer focus - indicates capabilities to be developed - requires managers to exercise foresight Things to consider when developing a vision statement: 1. internal/external factors 2. characteristics of an effective statement 3. common shortcomings 4. link with the company values Communication the Vision: in a slogan understand that there may be resistance recognize inflection points – change in a company’s environment that dramatically alters prospects and calls for a change in strategic course Characteristics of a good mission statement: - current business activities - highlights boundaries of current business - conveys: who we are, what we do, and where we are now - company specific/ gives an identity 8)      BHAG: big hairy audacious goals 9)      Why is it important to set objectives? - Converts strategic vision and mission into specific performance targets - Creates yardsticks for performance - Pushes firm to be inventive and focused on results - Helps prevent complacency and coasting Purpose of objective-setting: - Provides results-oriented decision-making for what should be accomplished - Provides a set of benchmarks for judging organizational performance Establishing objectives: - Represent commitment to achieve specific performance targets by a certain time - Should be stated in quantifiable terms and contain a deadline for achievement - Spell-out how much of what kind of performance by when What are the different types of objectives? financial strategic When is each important? 10)  What is the different between short-range and long-range objectives? By spelling out shorter range objectives, it sets the speed at which longer range targets are to be approached. Long term objectives take precedence. Both are important At what level is it important to set objectives? Top-down approach. Objectives should be set at the senior executive level so that lower levels have a goal to reach and can decipher how they will be able to reach it in terms of units and product lines. External Analysis/Chap. 3 11)  What is situation analysis? Two considerations - Company’s external or macro-environment - Company’s internal or micro-environment Why is it important? 12)  What are the components of an external analysis? - Differentiate between external environmental opportunities and threats - SWOT - Understand the components of an organization’s general environment 1. Technological 2. Demographic 3. Legal 4. Social 5. Economic - Understand the forces in Porter’s five forces model 14)  What is the experience curve effect? - unit costs decline as a company’s experience in performing builds 17)  What are driving forces? - major underlying causes of changing industry and competitive conditions, they have the biggest influence on how the industry landscape will be altered. - examples: emerging new Internet capabilities, increasing globalization, changes in industry’s long term growth rate, changes in who buys the product and how they use it, product innovation, technological change, marketing innovation, entry/exit of major firms 18)  What are some ways to analyze competitors in the industry? 1. 5 Forces Model of Competition (Porter) - composite of competitive pressure operating in five areas of market: 1. rivalry of competing sellers – strongest pressure - strongest when competitors are active in fresh moves, buyer demand growing slowly, sellers have excess capacity, # of rivals increases, cost to switch brand low, rivals have diverse strategies and objectives 2. threat of new entrants - seriousness depends on barriers to entry and existing firms reactions to entry - barriers exist when newcomers confront obstacles and economic factors put newcomer at disadvantage - strongest when pool of entry candidates is large, barriers are low, newcomers can earn high profits 3. substitute products in other industries - strongest when substitutes readily available, attractively priced, and have comparable or better performance 4. supplier bargaining power - strongest when industry members incur high cost in switching to alternative suppliers, needed inputs in short supply, supplier has differentiated input leading to high few suppliers - weakest when item being supplied is commodity, switching cost low, good substitutes inputs exist, sure in availability of supplies 5. buyer bargaining power - large retail chains because manufacturer’s want their product to get visibility on the shelves - strongest when switching costs are low, buyers can demand concessions, large volume purchases are important to sellers, buyer demand is weak - weakest when buyers purchase infrequently/small quant., switching costs high, surge in buyer demand, seller’s brand rep. important to buyer How to analyze these forces: Assess strength of each of the five competitive forces Explain how each force acts to create competitive pressure Decide strength of overall competition Identify Threats and Opportunities in each of the competitive forces. 2. Strategic Group Mapping - strategic group: those industry members with similar competitive approaches and positions in the market 19)  Be able to analyze and find an industry’s KSF (key success factors) - Product attributes, competencies, competitive capabilities, and market achievements with greatest impact on success in marketplace. - common examples: technology related, manufacturing related, marketing related Three major questions in identifying KSFs: 1. On what basis do buyers of the industry’s product choose between competing brands? 2. What resources and competitive capabilities does a company need to have to be competitively successful? 3. What shortcomings are almost certain to put a company at a significant competitive disadvantage? Internal Analysis/Chap. 4 20)  What is an internal analysis? - Identifies and evaluates resources, capabilities, and core competencies - strengths and weaknesses 21)  What are the key questions that need to be asked in a situation analysis? Know the key steps involved in answering each of these questions. 1. How well is firm’s present strategy working? - Determine current strategy of company - Examine key indicators of strategic and financial performance 2. What are the firm’s resource strengths and weaknesses and its external opportunities and threats? 3. Are firm’s prices and costs competitive? 4. How strong is firm’s competitive position relative to rivals? 5. What strategic issues does firm face? 22)  What are some examples of competitive approaches? - low cost leadership - niche - differentiation Competitive scopes? stages of industry’s production/distribution chain geographic coverage customer base Why are these important to be able to identify? - helps determine how well the company’s strategy is working 23)  What are indicators of how well a current strategy is working in an organization? - sales growth, market share - acquiring/retaining customers - inc/dec profit margins compared with rivals - ROI, net profits compared with rivals - improving or declining credit ratings and financial strength - demonstration of continuous improvement - shareholder’s view of company - image and reputation w/ customers - overall compared to industry rivals/competitors 24)  What leads to an organization having a competitive advantage? - doing a first rate job of managing value chain activities relative to competitors by lowering combined costs (continuously) of performing value chain activities and developing core/distinctive competencies What are questions to ask to determine whether or not this competitive advantage is sustainable? 25)  Competence: something they’re good at doing Core competence: competitively important activity that a company performs better than other internal activities Distinctive competence: competitively valuable activity that a company performs better than its rivals 26)  Tools to determine whether or not an organization’s costs are competitive - Activity based accounting - benchmarking 27)  Value Chain: all the various activities that a company performs internally to create customer value and related support - Primary activities - Support activities   What is the difference between traditional cost accounting and activity-based costing? - Traditional identifies costs according to broad categories of expenses like R&D, utilities, etc. while ABC involves establishing expense categories for specific value chain activities and assigning costs to the activity responsible for creating the cost 29)  Why do organizations benchmark? And who should they benchmark against? They benchmark to find “best practices” and see how other companies compare to them when it comes to costs of their value chain activities and in turn increase their competitiveness for low price and low cost 30)  Be able to determine a company’s KSFs relative to its rivals. Why is a competitive strength assessment important? - Important because it shows where the company is weakest in its KSFs and against whom