Define strategy
Strategy" is the determination of the basic long-term goals and objectives of an organization, and the adoption of courses of action and the allocation of resources necessary to achieve these goals and objectives.
Define strategic management
The art and science of formulating, implementing, and evaluating strategies that enable an organization to achieve its goals and objectives
What is the purpose of strategic management?
To exploit and create new and different opportunities for tomorrow
What are the three levels of decision-making?
1. Strategic Level: Decisions involving the achievement of sustainable competitive advantage, e.g., decision to launch a new product, enter a new market, invest in a certain enterprise
2. Tactical Level: Decisions involving the implementation of strategy,
What is the importance of strategic management?
- Strategies determine long-term competitive advantages
- Strategies are necessary to address:
Where are we now?
Where do we want to go?
How are we going to get there?
How will we know if we've gotten there?
- If an entity fails to systematically monitor
What are the three stages of the strategic management process?
1. Strategy formulation
2. Strategy implementation
3. Strategy evaluation
What are the steps and issues of strategy formulation?
Steps:
1. Craft Vision and Mission Statements
2. Identify External O&T
3. Identify Internal S&W
4. Determine Long-Term Objectives
5. Generate Alternative Strategies
6. Select Preferred Strategy
Issues:
- Businesses to enter
- Businesses to abandon
- Alloc
What are the steps and issues of strategy implementation?
1. Specify annual objectives
2. Craft policies
3. Motivate employees
4. Allocate resources
- Develop a culture supportive of the strategy
- Create an effective organizational structure
- Redirect marketing efforts
- Prepare budgets
- Develop and utilize i
What are the steps of strategy evaluation?
1. Review internal factors that are the basis of current strategy
2. Review external factors that are the basis of current strategy
3. Measure performance
4. Take corrective action
Integrating Intuition and Analysis
- Strategic management should integrate intuition and analysis in decision-making at all levels of the organization.
* Intuition is based on:
- Past experiences
- Judgment
- Feelings
* Intuition is especially useful for decision making under conditions of
Define competitive advantage
- "Competitive advantage" means anything that an organization does especially well compared to rival organizations
- Getting and keeping competitive advantage is essential to organizations' long-term success
What are the three steps to achieving sustained competitive advantage?
1. Continually adapt to changes in the external environment and internal capabilities, competencies, and resources
2. Effectively formulate, implement, and evaluate strategies that capitalize on these factors
3. The elements of surprise and deception prov
What do strategists do?
- Help an organization gather, analyze, and organize information
- Are those most responsible for the success or failure of an organization
- The CEO is the most visible and critical strategic manager
Define long-term objectives
- Are the specific results that an organization seeks to achieve in pursuing, through the execution of strategies, its basic mission
- "Long-term" means more than one year
* Essential for ensuring the organization's success
- Provide direction
- Aid in ev
What are annual objectives?
- Short-term milestones that organizations must achieve to reach long-term objectives
- A set of annual objectives is needed for each long-term objective
Define strategies
- Are the means by which long-term objectives are achieved
*Examples
Geographic expansion
Diversification
Acquisition, especially of distressed rivals during recessions
Product development
Market penetration
Retrenchment
Divestiture
Liquidation
Joint vent
Define policies
- Are the means by which annual objectives will be achieved
- Include guidelines, rules, and procedures established to support efforts to achieve stated objectives
- Are guides to decision-making and address repetitive or recurring situations
What are the benefits of strategic management?
1. Enhanced Communication (e.g. Dialogue Participation) -->
2. Deeper/improved understanding (e.g. of others' views, of what the firm is doing/planning and why)
3. Greater commitment (to achieve objectives, to implement strategies, to work hard)
4. The Re
What are the characteristics of effective strategic planning?
- A people process more than a paper process
- A learning process
- Words supported by numbers
- Simple and nonroutine
- Varying assignments, team membership, meeting formats, and planning calendars
- Challenging assumptions underlying corporate strategy
Define mission statement
- An enduring statement of purpose that distinguishes an organization from other similar enterprises
- A declaration of an organization's "reason for being"
- Answers the basic question: "What is our business?"
- Identifies
* what the organization wants t
What are the benefits of having a clear vision and mission?
* Developing and communicating a clear business mission and vision is the first responsibility of strategists, yet this is the most commonly overlooked task in strategic management.
- Achieve clarity of purpose among all managers and employees
- Provide a
What are the types of stakeholders?
- Government
- Employees
- Customers
- Suppliers
- Creditors
- Community
- Trade unions
- Owner(s)
- Investors
What are the characteristics of effective mission statements?
- Brief; less than 200 words
- Inspiring and motivational
- Clearly articulate what the organization is and how it differs from others
- Provide a framework for evaluating activities
- Broad in scope; do not include numbers or objectives
- Balance specifi
Define vision statement
- A business "vision" is a possible and desirable future state of an organization
- A vision statement should answer the basic question, "What do we want to become?"
- Vision statements are essential because profit alone cannot motivate a workforce effect
What are the steps to developing a vision and mission statement?
1. Have managers read related articles and competitors' statements
2. Have managers prepare vision and mission statements
3. Merge the documents into one and distribute
4. Gather feedback from managers
5. Meet to revise the final document
- Get as many ma
What are the steps in strategic management?
1. Develop vision and mission statements
2. Perform external & internal audit
3. Establish long-term objectives
4. Generate, evaluate, and select strategies
5. Implement strategies -- Management issues
6. Implement strategies -- Marketing, Finance, Accoun
What is the purpose of an external assessment?
* The purpose of an external assessment is to develop a list of the most important:
- opportunities that, if exploited, could benefit an organization
- threats that should be avoided
* Focuses on identifying and evaluating factors beyond the control of a
Describe the external assessment process
- Gather, assimilate, and evaluate competitive intelligence to obtain a list of the most important opportunities and threats facing an organization
How do you determine which are the key external factors?
* Should be:
- Important to achieving long-term and annual objectives
- Measurable
- Applicable to all competing firms
- Hierarchical (some will pertain to overall company and others will be focused on functional areas)
Define the Industrial Organization (I/O) View
* Holds that industry factors are more important than internal factors in a firm achieving competitive advantage
* Firm performance primarily based on industry properties, such as
- Economies of scale
- Barriers to market entry
- Product differentiation
-
What do social, cultural, demographic, and natural environmental forces impact?
Significantly impact all:
- Products
- Services
- Markets
- Customers
What are some key variables of political, governmental, and legal forces?
* Key variables
- Antitrust legislation
- Tax rates
- Lobbying activities
- Patent laws
- Protectionist policies
- Government regulations
- Size of government budgets
- Level of government subsidies
- Import-export regulations
- Governments taking equity
What are some technological forces?
* The Internet has
- Increased the speed of distribution
- Created new products and services
- Erased limitations of traditional geographic markets
* The significance of IT is reflected in the establishment of related new positions in firms:
- Chief Infor
What data should be collected on competitive forces?
* Because of intense competition in all industries, the collection and evaluation of data on competitors is essential for successful strategy formulation
- Their strengths
- Their weaknesses
- Their objectives and strategies
- Their responses to external
What are the seven characteristics of the most competitive firms?
1. Market share matters
2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
5. Acquisition is essential to growth
6. People make a difference
7. No substitute for quality
Define competitive intelligence. What are the objectives?
* A systematic and ethical process for gathering and analyzing information about the competition's activities and general business trends to further a business's own goals
*Objectives:
1. Provide a general understanding of the firm's industry and competit
What are some sources of competitive intelligence?
- Internet
- Employees
- Managers
- Suppliers
- Distributors
- Customers
- Creditors
- Consultants
- Trade journals
- Want ads
- Newspaper articles
- Government filings
- Competitors
What are two ways to analyze competitiveness?
1. Market Commonality: The number and significance of markets in which a firm competes with rivals
2. Resource Similarity: The extent to which the type and amount of a firm's internal resources are comparable to those of a rival
What are Porter's Five Forces Model of Competition?
1. Rivalry among competing firms�strategies pursued by a firm can succeed only to the extent they provide competitive advantage over the strategies pursued by rivals
2. Potential entry of new competitors�whenever new firms can easily enter an industry, th
What conditions cause intense rivalry among competing firms?
- Many competing firms
- Similar size of firms competing
- Similar capability of firms competing
- Falling demand for the industry's products
- Falling product/service prices in the industry
- Consumers can switch brands easily
- Barriers to leaving the m
Describe potential entry of new competitors.
- Barriers to entry (e.g., government regulatory policies, lack of good locations, need to gain economies of scale quickly) can diminish competitiveness
- Quality, pricing, and marketing can overcome entry barriers
- Under threat of new firms entering the
Describe potential development of substitute products
* Competitive pressure increases when:
- Prices of substitutes decrease
-Consumers' switching costs decrease
Describe bargaining power of suppliers
* Powerful suppliers capture more of the value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants
* A supplier group is powerful if:
- It is more concentrated than the industry it sells to (a
Describe the bargaining power of consumers
- Customers being concentrated or buying in volume affects intensity of competition
- Consumer power is higher when products are standard or undifferentiated
What conditions cause consumers to gain bargaining power?
- If buyers can inexpensively switch
- If buyers are particularly important to the seller
- If buyers are informed about sellers' products, prices, and costs
- If buyers have discretion in whether and when they purchase the product
- If sellers are strugg
How can you use the five-forces model to determine if an acceptable profit can be earned?
1. Identify key aspects or elements of each competitive force
2. Evaluate how strong and important each element is for the firm
3. Decide whether the collective strength of the elements is worth the firm entering or staying in the industry
What are some sources of external information?
* Unpublished sources:
1. Customer surveys
2. Market research
3. Speeches at professional or shareholder meetings
4. Television programs
5. Interviews and conversations with stakeholders
*Published sources:
1. Periodicals
2. Journals
3. Reports
4. Governm
What are the two types of forecasts?
* Managers often must rely on published forecasts to effectively identify key external opportunities and threats
* Forecasts are educated assumptions about future trends and events based upon the best available information in the present
1. Quantitative t
Describe the External Factor Evaluation Matrix
* Allows strategists to summarize and evaluate key external factors identified in the external audit process, including (economic, social, cultural, demographic, environmental, political, governmental, technological, competitive, legal)
Steps:
1. List 15-
What is the rationale for internal assessments?
- An assessment of internal strengths and weaknesses and external opportunities and threats, combined with a clear statement of vision and mission, form the basis for establishing objectives and strategies
- Building competitive advantage involves identif
Describe the internal assessment process
* Parallels process of external assessment
* Strengths and weaknesses are assessed in:
- Management
- Marketing
- Finance/accounting
- Production/operations
- Research & development
- Management information systems
* Managers and employees from all areas
Describe the resource based view approach to competitive advantage
* For a resource to be valuable, it must be at least one of the following: (1) rare, (2) difficult to imitate, and/or (3) not easily substitutable
* Internal resources are more important than external factors in achieving and sustaining competitive advant
Describe organizational culture
A pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration, and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceiv
What are the functions of management?
1. Planning
- Allows an organization to adapt to changing conditions and thus to pro-actively shape its own destiny instead of constantly reacting to circumstances and events
- Beginning of management process
- Bridge between present and future
- Improves
Which strategic management stage is each function of management most important?
1. Strategy Formulation: planning
2. Strategy Implementation: organizing, motivating, staffing
3. Strategy Evaluation: controlling
Describe marketing and its functions
* Involves defining, anticipating, creating, and fulfilling customer needs or wants for products and services
* Functions:
1. Customer analysis.
- Customer surveys
- Consumer information
- Market positioning strategies
- Customer profiles
- Market segment
What are the three financing decisions?
1. Investment decision (capital budgeting): should we allocate resources to this project/product/asset/division?
2. Financing decision: what capital structure is best for us and how should we raise capital?
3. Dividend decision: what percentage of earning
What are liquidity ratios?
* Measure a firm's ability to meet its short-term obligations
* Ratios
- Current ratio
- Quick (or acid test) ratio
What are leverage ratios?
* Measure the extent to which a firm has been financed by debt
* Ratios
- Debt-to-total assets
- Debt-to-equity
- Long-term debt-to-equity
- Times-interest-earned
What are activity ratios?
* Measure how effectively a firm is using its resources
* Ratios
- Inventory turnover
- Fixed assets turnover
- Total assets turnover
- Accounts receivable turnover
- Average collection period
What are profitability ratios?
* Measure management's overall effectiveness as shown by returns on sales and investment
* Ratios
- Gross profit margin
- Operating profit margin
- Net profit margin
- Return on total assets (ROA)
- Return on stockholders' equity (ROE)
- Earnings per shar
What are growth ratios?
* Measure the firm's ability to maintain its economic position in the growth of the economy and industry
* Ratios
- Sales
- Net Income
- Earnings per share
- Dividends per share
*Not one of the four basic ratios
What are the functions of production/operations?
* Process (of creating satisfying visits)
* Capacity (to create satisfying visits)
* Inventory (of guestrooms, attractions, airline seats)
* Workforce (number of trained employees)
* Quality (procedures to ensure quality service)
What are the functions of R&D?
* Research and Development functions
- Facilitate development of new products and services before competitors
- Improve product and service quality
- Improve production processes to reduce costs
* These functions can be done internally or externally
What are the four approaches to determining R&D budget allocations?
* Four approaches to determining R&D budget allocations:
1. Finance as many projects as possible
2. Use the percent-of-sales method
3. Budget relative to competitors
4. Identify how many successful new products or services are needed
What is the purpose of MIS?
* Purpose: Enhance the performance of an enterprise by improving the quality of managerial decisions
Describe value chain analysis
- The business of a firm can best be described as a value chain in which total revenues minus total costs of all activities undertaken to develop and market a product or service yields value
- A hotel's value chain includes food service, housekeeping, fro
Define benchmarking
* Benchmarking - determining whether a firm's value chain activities are competitive compared to rivals
- Involves identifying, duplicating, or improving upon industry best practices
- Enables a firm to take action to improve its competitiveness by identi
How can you transform value chain activities into sustained competitive advantage?
Value chain activities are identified and assessed --> Core competencies arise in some activities --> Some core competencies evolve into distinctive competencies --> Some distinctive competencies yield sustained competitive advantages
Describe the Internal Factor Evaluation Matrix
1. List 10-20 key internal factors
2. Assign a weight ranging from 0.0 (not important) to 1.0 (all-important) to each factor
3. Assign a 1 (major weakness), 2 (minor weakness), 3 (minor strength) to 4 (major strength) rating to each factor. (Note: Having
What is the difference between a weakness anda threat?
- A weakness is a limitation, fault, or defect within the organization that will prevent it from achieving its objectives.
- A threat is any unfavorable situation in the organization's environment that is potentially damaging to its strategy, including ba