Business Strategy Chapter 1

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Questions and Answers

According to Henry Mintzberg, which mode of strategic decision-making is characterized by reactive solutions to existing problems rather than a proactive search for new opportunities?

Adaptive mode

What is the dominant goal of the Entrepreneurial mode of strategic decision-making?

Growth of a corporation (correct)

Cost-cutting

Risk management

Profitability

Logical incrementalism is a synthesis of the planning, adaptive, and entrepreneurial modes of strategic decision-making.

True

Corporate governance pertains to the system of rules, practices, and processes by which a firm is directed and controlled, balancing the interests of various ____ such as shareholders, management, customers, suppliers, government, and the community.

stakeholders Signup and view all the answers

Match the following sustainable business practices with the respective companies:

Stakeholder engagement = PepsiCo Water stewardship = Coca-Cola Supply chain management = Ford Motor Company Innovation = Nike Signup and view all the answers

What factor determines the impact of government and government policy on an organization?

Political Signup and view all the answers

Give an example of how McDonald's may benefit from international trade agreements.

Easier business expansion to foreign countries Signup and view all the answers

Buyer power in Porter's Five Forces can easily influence price increases.

False Signup and view all the answers

Supplier power in Porter's Five Forces can be influenced by the uniqueness of their product or service, relative size and strength of the supplier, and cost of switching from one supplier to another.

number of suppliers of each essential input Signup and view all the answers

Match the following business ecosystem players with their descriptions:

Customers = Buy products and services of an organization Suppliers = Provide resources needed to produce or sell products/services Competitors = Fight over market share offering similar products/services Complementors = Enhance the value of a company's product or service Signup and view all the answers

What is a strategy according to the Management Study Guide?

A well-defined roadmap of an organization Signup and view all the answers

According to Sun Tzu, what is the most critical factor to a winning strategy?

planning Signup and view all the answers

Strategic management includes short term and long-term strategy formulation, implementation, evaluation, and control.

True Signup and view all the answers

Functional strategy focuses on maximizing resource productivity in a specific ______________ area of an organization.

functional Signup and view all the answers

According to Carroll, in what order should a business firm prioritize its responsibilities?

Economic -> Legal -> Social -> Ethical Signup and view all the answers

Peter Drucker believes that the corporate mission should always come first.

True Signup and view all the answers

What characteristic makes strategic decisions unique?

They deal with the long-term future of an entire organization Signup and view all the answers

What is the primary purpose of environmental scanning in business?

to examine key factors influencing business operations Signup and view all the answers

A stakeholder is a person with an interest or concern on a particular ____________ undertaking.

business Signup and view all the answers

Match the following aspects of the environment with their descriptions:

Natural environment = Includes physical resources and climate Societal environment = Mankind's social system affecting long-term decisions Task environment = Includes elements directly affecting a corporation Signup and view all the answers

Study Notes

Strategy

A strategy involves courses of action to attain organizational goals, integrating and aligning activities and allocating resources to meet objectives.
Features of strategy include:
- A well-defined roadmap of an organization
- Defines overall mission, vision, and direction
- Maximizes organizational strengths and minimizes competitors' strengths
Objective of strategy: to capture a greater market share than competitors

The Study of Strategic Management

Strategic management: a set of managerial decisions and actions that determine long-term performance
Includes internal and external environment, short-term and long-term strategy formulation, implementation, evaluation, and control
Evolution of strategic management:
- Phase 1: Basic financial planning (complex proposals, shallow analysis, simplistic operational planning)
- Phase 2: Forecast-based planning (five-year budget plans, projects taking more than a year, highly political and time-consuming process)
- Phase 3: Externally oriented planning (formal strategic planning system, top-down planning, use of consultants and competitive intelligence units)
- Phase 4: Strategic management (input and commitment of lower-level managers, integrated plans, strategic thinking at all levels)

Types of Strategies

Business strategy: strengthens company's competitive position, composed of competitive and cooperative strategies
Corporate strategy: long-term vision, creates corporate value, motivates workforce
Functional strategy: emphasizes a particular functional area, achieves objectives of a business unit, maximizes resource productivity

Competitive Advantage

Superior performance relative to competitors or industry average
Determinants of competitive advantage:
- Benefit (value offered to the market)
- Target market (selected group of customers)
- Competition (rivalry between companies)
- Cost advantage (lower cost than competitors)
- Differentiation strategy (unique qualities setting the product apart)

Initiation of Strategy: Triggering Events

Triggering events: stimuli for change in strategy
Internal environment:
- New CEO
- Performance measures (gaps in performance meeting expectations)
- Threat of change in ownership
External environment:
- External intervention (alterations in supply chain, demand, supply, and environmental risks)
- Strategic inflection point (major alterations due to new technologies, regulatory environment, customer values, or preferences)

Strategic Decision-Making

Characteristics of strategic decisions:
- Rare
- Consequential
- Directive
Approaches to strategic decision-making:
- Entrepreneurial mode (one powerful individual, focused on opportunities)
- Adaptive mode (reactive solutions to existing problems)
- Planning mode (systematic gathering of information for situation analysis)
- Logical incrementalism (synthesis of planning, adaptive, and entrepreneurial modes)

Strategic Decision-Making Process

Steps in strategic decision-making process:
- Evaluate current performance results
- Review corporate governance
- Scan and assess external environment
- Scan and assess internal corporate environment
- Analyze strategic factors
- Generate, evaluate, and select alternative strategies
- Implement selected strategies
- Evaluate implemented strategies

Definition and the Triple Bottom Line (TBL) of Sustainability

Sustainability: business practices satisfying present needs without compromising future generations' ability to meet their own needs
Triple Bottom Line (TBL):
- Economic Pillar (economic efficiency, income, profitability)
- Social Pillar (quality of life, safety, services for citizens)
- Environmental Pillar (availability and quality of natural resources)

Sustainable Business Practices

Examples of sustainable business practices:
- Stakeholder engagement (PepsiCo)
- Employee engagement (General Electric)
- Water stewardship (Coca-Cola)
- Supply chain management (Ford Motor Company)
- Innovation (Nike)
- Management accountability (Xylem)
- Executive compensation (Exelon)
- Biodiversity (Pacific Gas & Electric Company)
- Investor dialogue (Starbucks)### Corporate Governance
Corporate governance refers to the system of rules, practices, and processes by which a firm is directed and controlled.
It involves balancing the interests of a company's stakeholders, including shareholders, management, customers, suppliers, government, and the community.
Functions of corporate governance:
- Goals and risk management: setting policies and procedures to meet company goals and manage business risk.
- Corporate accountability: ensuring accountability within the board of directors and management structure.
- Shareholder meetings: keeping shareholders informed of the company's financial health and business initiatives.

Social responsibility refers to the obligations of a business to society, including economic, legal, ethical, and discretionary responsibilities.
Milton Friedman's traditional view: a business's primary responsibility is to increase profits, while social responsibility is a "fundamentally subversive doctrine".
Archie Carroll's four responsibilities of business:
- Economic: producing goods and services of value to society.
- Legal: complying with laws and regulations.
- Ethical: following generally accepted ethical values.
- Discretionary: voluntarily contributing to the well-being of society.
Peter Drucker's view: companies should ensure that social responsibilities become business opportunities.
Stakeholder analysis: identifying and evaluating corporate stakeholders, including primary (direct connection) and secondary (indirect connection) stakeholders.

Environmental Scanning and Industry Analysis

Environmental scanning: an in-depth examination of key factors that influence business operations, including natural, societal, and task environments.
Natural environment: physical resources, wildlife, and climate that affect business operations.
Societal environment: general forces that influence long-term decisions, including economic, technological, political-legal, and sociocultural forces.
Task environment: elements that directly affect a corporation, including governments, local communities, suppliers, competitors, customers, creditors, employees, and special-interest groups.

Industry Analysis

Industry analysis: examining the important stakeholder groups in a corporation's task environment.
SWOT analysis: evaluating a company's competitive position by identifying strengths, weaknesses, opportunities, and threats.
PESTEL analysis: identifying external factors that may affect an organization, including political, economic, social, technological, environmental, and legal factors.
Porter's Five Forces: assessing the competitive strength and position of a business organization, including supplier power, buyer power, threat of new entrants, threat of substitutes, and competitive rivalry.### Porter's Five Forces Analysis
Customer bargaining power is strong when there are low switching costs, a large number of providers, and high availability of substitutes.
McDonald's has strong customer bargaining power due to low switching costs, a large number of providers, and high availability of substitutes.

Competitive Rivalry

Competitive rivalry is high when there are few businesses equally selling a product or service, the industry is growing, and consumers can easily switch to a competitor's product for a cheaper cost.
McDonald's faces tough competition due to the saturated fast food restaurant market, high number of firms, high aggressiveness of firms, and low switching costs.

Threat of Substitution

The threat of substitution is strong when buyers can easily find substitute products with attractive prices or better quality, and when buyers can switch from one product or service to another with little cost.
McDonald's has a high threat of substitution due to high substitute availability and low switching costs.

Threat of New Entrants

The threat of new entrants is strong when an industry is profitable and there are few barriers to enter, and weak when there are high barriers to enter.
McDonald's has a moderate threat of new entrants due to low switching costs, highly variable capital cost, and high cost of brand development.

Business Ecosystem Assessment

The business ecosystem consists of four types of players: customers, suppliers, competitors, and complementors.
Customers are people or parties that buy products and services of an organization.
Suppliers are external factors that provide the resources needed to produce or sell finished products or services.
Competitors are parties that fight over the market share of an organization by offering similar products or services and targeting similar customers.

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Description

This quiz covers the concept of strategy in business management, including its features, importance, and implementation.