Strategic Management and Firm Vision
45 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What should a well-designed vision incorporate to prepare a firm for the future?

  • A detailed analysis of past performance
  • A focus on immediate profits
  • A profound sense of success (correct)
  • An idealistic projection of capabilities

Which of the following is NOT a characteristic of an effective vision?

  • Requires creativity from top managers
  • Stable over time
  • Achievable within realistic parameters
  • Focused on shareholder value (correct)

What is essential for a vision to be beneficial to a firm?

  • It needs to be deliberately vague
  • It should be a realistic dream (correct)
  • It must rely solely on past achievements
  • It must ignore market conditions

When defining a vision, firms should focus on which of the following considerations?

<p>Market and social conditions along with capabilities (C)</p> Signup and view all the answers

Why should a vision be succinct rather than lengthy?

<p>It constitutes a firm’s identity and is more effective in few words (B)</p> Signup and view all the answers

What is the role of the coordinator director as specified in the recommendations?

<p>To convene meetings and coordinate outside directors (C)</p> Signup and view all the answers

What is a recommended aspect of the remuneration of directors?

<p>To tie remuneration to the firm's performance (B)</p> Signup and view all the answers

Which of the following is NOT a recommended practice related to board governance?

<p>Unlimited power for the Chair of the board (C)</p> Signup and view all the answers

What is a system of direct variable remuneration linked to?

<p>Management targets and firm performance (C)</p> Signup and view all the answers

How do shareholding systems align managers' interests with those of shareholders?

<p>By delivering stock options contingent upon value creation (A)</p> Signup and view all the answers

Which recommendation aims to promote social responsibility within the organization?

<p>The creation of special committees for various needs (A)</p> Signup and view all the answers

What objective is NOT a focus of incentive schemes for top managers?

<p>Providing management with fixed pay only (B)</p> Signup and view all the answers

What is the purpose of the performance assessment of the board?

<p>To ensure accountability and improve effectiveness (B)</p> Signup and view all the answers

Why is it important to establish priorities when setting strategic objectives?

<p>To discard or postpone less compatible objectives (C)</p> Signup and view all the answers

What is a primary reason strategic objectives need to be frequently updated?

<p>They are sensitive to changes in the environment (D)</p> Signup and view all the answers

Which of the following describes accounting profit?

<p>The difference between income and expenditure over a period (D)</p> Signup and view all the answers

How can a firm's performance be an indicator of management quality?

<p>Performance is directly linked to the quality of management’s strategies (C)</p> Signup and view all the answers

What is an example of an accounting indicator?

<p>Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) (C)</p> Signup and view all the answers

What is one of the main purposes of establishing an ethical code within an organization?

<p>To clarify commitments of members towards the firm (C)</p> Signup and view all the answers

Which problem is associated with measuring a firm's performance?

<p>Defining appropriate metrics can be challenging (B)</p> Signup and view all the answers

Why are a few key strategic objectives emphasized at the corporate level?

<p>To focus the firm's energy and resources more effectively (C)</p> Signup and view all the answers

Which of the following is a component typically included in an ethical code?

<p>Procedural guidelines for professional conduct (B)</p> Signup and view all the answers

What impact does an improvement in one measurement variable have on another?

<p>Positive changes may lead to negative changes in different variables (A)</p> Signup and view all the answers

How does corporate governance relate to ethical conduct in a firm?

<p>It emphasizes ethical behavior for achieving corporate objectives (D)</p> Signup and view all the answers

What role do sanctions play in an ethical code?

<p>They outline consequences for non-compliance (D)</p> Signup and view all the answers

In which areas are corporate social responsibility (CSR) reports expected to include information?

<p>Good governance and codes of conduct (D)</p> Signup and view all the answers

Why is it important for employees to embrace corporate values?

<p>To maintain a consistent relationship with stakeholders (A)</p> Signup and view all the answers

What may happen if there is inconsistency between a firm's stated values and its actual behavior?

<p>Compromise of business performance (C)</p> Signup and view all the answers

What is one effect of establishing procedural guidelines in an ethical code?

<p>They assist employees in navigating ethical dilemmas (A)</p> Signup and view all the answers

What does EBIT stand for?

<p>Earnings Before Interest and Tax (B)</p> Signup and view all the answers

Which of the following ratios is used to measure economic performance based on assets?

<p>ROA (Return on Assets) (A)</p> Signup and view all the answers

What does EVA represent in financial analysis?

<p>Economic Value Added (C)</p> Signup and view all the answers

What needs to be calculated to determine if a firm is creating value?

<p>Theoretical value and market value (C)</p> Signup and view all the answers

Which of the following accurately describes economic profit?

<p>It reflects profit considering the cost of production factors. (B)</p> Signup and view all the answers

How is the return on equity (ROE) calculated?

<p>Net income divided by the sum of equity (C)</p> Signup and view all the answers

What does the difference between EBIAT and the product of the book value of the firm's assets and average capital cost represent?

<p>Economic Value Added (D)</p> Signup and view all the answers

What defines a firm's market value or capitalization?

<p>The product of the number of shares and their price (C)</p> Signup and view all the answers

What is the primary purpose of a firm's set of principles and values?

<p>To guide progress toward achieving the firm's vision and mission (D)</p> Signup and view all the answers

Which statement aligns with the criticism of social responsibility in firms?

<p>It distracts from the primary goal of maximizing shareholder returns (D)</p> Signup and view all the answers

What significant change does a stakeholder approach bring to a firm's governance?

<p>It transforms governance into a multilateral relationship (B)</p> Signup and view all the answers

How should a firm's values relate to its vision and mission?

<p>They need to be consistent to guide operations effectively (D)</p> Signup and view all the answers

What does assuming social responsibility imply for a firm according to critics?

<p>It can undermine profit maximization principles (A)</p> Signup and view all the answers

What aspect of a firm's decision-making process is affected by a stakeholder approach?

<p>It broadens the criteria to include environmental and social impacts (A)</p> Signup and view all the answers

What is the implication of viewing a firm as a social institution?

<p>It acknowledges the firm's responsibilities toward its stakeholders (A)</p> Signup and view all the answers

What is a voluntary application in the context of social responsibility?

<p>Choosing to adopt social responsibility practices at the firm's discretion (C)</p> Signup and view all the answers

Flashcards

Vision (in business)

A clear and inspiring picture of what a company wants to achieve in the future. It guides the company's direction and motivates employees.

Realistic Vision

The vision should be achievable with effort, not a fantasy. It needs to consider market trends, technology, and social changes.

Vision & Employee Motivation

The vision should inspire the workforce and make them feel their work is worthwhile. It should be something they can get behind.

Concise Vision Statement

The vision should be short, memorable, and easy to understand, not a long, complicated document.

Signup and view all the flashcards

Vision & Company Identity

The vision helps the company define its purpose and direction in the present and the future. It helps it identify who it is and where it's going.

Signup and view all the flashcards

Objective Proliferation

Setting objectives at any level of the organization can lead to many objectives being created for the same strategic area or for a single manager or team. This can cause problems because the objectives may not be compatible.

Signup and view all the flashcards

Few Key Strategic Objectives

At the corporate level, it's important to have a small number of key objectives. This helps the company focus its energy and resources to effectively achieve its corporate vision and goals.

Signup and view all the flashcards

Performance as a Success Indicator

A company's performance reflects the quality of its management and overall organization in pursuing success. Better performance means greater success.

Signup and view all the flashcards

Performance Measurement Complexity

While performance can be measured using accounting and economic indicators, it can be challenging to quantify precisely.

Signup and view all the flashcards

EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a financial metric that shows the difference between a company's revenue and its costs, excluding certain expenses like interest, taxes, depreciation, and amortization.

Signup and view all the flashcards

Dynamic Strategic Objectives

Strategic objectives are more adaptable than a company's vision or mission. They need to be updated frequently to align with changes in the external environment and internal factors.

Signup and view all the flashcards

Guiding Strategic Decisions

Strategic objectives provide a clear criterion for guiding decisions related to the company's overall strategy. By analyzing objective performance, the success or failure of the strategy can be assessed.

Signup and view all the flashcards

Assessing Management Performance

Strategic objectives evaluate the effectiveness of the management team's work by showing how well they have executed the strategy. Effective management leads to achieving strategic objectives.

Signup and view all the flashcards

What is EBIT?

EBIT (Earnings Before Interest and Tax) is calculated by subtracting depreciation, amortization, and provisions from EBITDA.

Signup and view all the flashcards

How is Net Income calculated?

Net Income (NI) measures a firm's profitability after accounting for interest and tax expenses.

Signup and view all the flashcards

What is ROA?

ROA is a profitability ratio that reflects the effectiveness of a firm's assets in generating operating income. It's calculated by dividing EBIT or EBITDA by the average total assets.

Signup and view all the flashcards

Define ROE.

ROE measures the profitability of a firm's equity by dividing net income by the total equity. It considers both the economic performance and financial leverage.

Signup and view all the flashcards

What is Economic Profit?

Economic profit takes into account the cost of all production factors, including equity capital. It reflects the firm's true profitability considering opportunity costs.

Signup and view all the flashcards

Explain EVA.

EVA (Economic Value Added) is calculated by subtracting the cost of capital from EBIAT. It reflects the surplus value generated by the firm after considering the financial cost of its assets.

Signup and view all the flashcards

How is a firm's value determined?

A firm's value is determined by its ability to generate rents or earnings through the return on its productive assets. This value is reflected in its theoretical value and market value.

Signup and view all the flashcards

What is Theoretical Value?

A firm's theoretical value is calculated by discounting the future cash flows generated by the firm at an appropriate rate. It reflects the present value of expected earnings.

Signup and view all the flashcards

Coordinator Director

A director designated by the board to oversee the functioning of the board, especially when the Chair is primarily a senior executive.

Signup and view all the flashcards

Incentive Schemes

The practice of linking top management's compensation to the company's financial performance, encouraging them to prioritize shareholder value.

Signup and view all the flashcards

Direct Variable Remuneration

A system where management salaries are directly tied to profits or value creation. This motivates managers to improve company performance.

Signup and view all the flashcards

Systems Based on Shareholding

Compensation arrangements that give top management shares, stock options or rights to future gains in share value, incentivizing them to boost company value for their own benefit.

Signup and view all the flashcards

Professional Promotion

A career progression system linked to performance and tenure, incentivizing managers to stay with the company and contribute to long-term success.

Signup and view all the flashcards

Remunerations Committee

A board committee responsible for reviewing and recommending director compensation, ensuring it's fair and aligned with company performance.

Signup and view all the flashcards

Auditing Committee

A board committee that oversees the company's financial statements, audits, and other financial matters, ensuring transparency and accountability.

Signup and view all the flashcards

Appointments Committee

A board committee responsible for recommending new directors and overseeing board nominations, ensuring board diversity and expertise.

Signup and view all the flashcards

Corporate Values

A set of principles, beliefs, standards, and commitments that guide a firm's progress towards achieving its vision and mission.

Signup and view all the flashcards

Corporate Social Responsibility

A company's approach to addressing social responsibilities arising from its operations, including evaluating social costs and defining its role in society.

Signup and view all the flashcards

Friedman's View on CSR

The idea that a company's primary responsibility is to maximize profits for its shareholders, and any social responsibility is a distraction from this goal.

Signup and view all the flashcards

Values, Vision, and Mission Alignment

A company's values must align with its vision and mission to provide clear guidelines for achieving both.

Signup and view all the flashcards

Values-Based Operations

A company's actions and behavior need to be consistent with its stated values to maintain public trust and legitimacy.

Signup and view all the flashcards

Stakeholder Governance

Expanding the traditional governance model to include all stakeholder interests, not just shareholders, in decision-making.

Signup and view all the flashcards

CSR and Value Creation

A company's commitment to social responsibility need not contradict the goal of increasing shareholder value.

Signup and view all the flashcards

Companies as Social Institutions

The idea that companies are not isolated entities but operate within a complex social and political context.

Signup and view all the flashcards

Ethical Code

A set of guidelines that define acceptable and unacceptable behaviors for members of an organization, often encompassing legal and ethical standards.

Signup and view all the flashcards

Forbidden Behaviors in Ethical Codes

The behaviors that are expressly forbidden for employees due to legal or contractual provisions.

Signup and view all the flashcards

Promoting Positive Values in Ethical Codes

Positive values that a company embraces to reflect its culture and personality.

Signup and view all the flashcards

Procedural Guidelines in Ethical Codes

Guidelines for handling situations involving professional conduct that are ethically ambiguous.

Signup and view all the flashcards

Sanctions for Non-Compliance in Ethical Codes

Consequences for non-compliance with the ethical code, both within the organization and through legal channels.

Signup and view all the flashcards

Corporate Governance and Ethics

The relationship between the interests of shareholders and management, focusing on responsible and ethical conduct.

Signup and view all the flashcards

Social Responsibility and Ethics

The company's responsibility to stakeholders and its impact on society, often encompassing environmental and social considerations.

Signup and view all the flashcards

Consistency Between Values and Behavior

Ensuring that a company's actions align with its stated values and ethical principles.

Signup and view all the flashcards

Study Notes

The Firm's Future Direction

  • Strategic Management process defines vision, mission, strategic objectives, and values to guide future operations
  • Vision: a company's long-term (5-10+ years) desired achievement; not usually reviewed annually
  • Mission: the management's view of the company's future development
  • Changing the CEO doesn't necessarily change the vision/mission
  • Strategic objectives: high-level, measurable goals with deadlines outlining an organization's ambitions
  • Values: principles and beliefs guiding teams toward a common business goal; involve all members, from senior to grassroots

Basic Requirements for Vision

  • Vision should incorporate a strong sense of success, be stable over time, and make employees' effort worthwhile
  • It should be a realistic dream, worth the collective effort representing a realistic interpretation of management's future aspirations for the firm.
  • The vision shouldn't be unachievable or unrealistic. Consideration of market, technology, economics, and social conditions is crucial.

Corporate Mission

  • Firm's identity, personality at present and for the future → essence and business understanding
  • It considers the firm's reason for existing and how it understands its business operations.
  • Its statement of principles serves as a valid reference for the firm and its members
  • A stable document throughout time yet subject to evolution like other aspects of the organization.

Strategic Objectives

  • The gap between the future and present realities of a firm demands effort; strategic objectives (interim, less ambitious) translate the vision into smaller, achievable challenges.
  • Well-defined objectives incorporate measurable attributes, a yardstick for measurement of that attribute, a target to be met, and a timeframe for achievement.
  • Objectives serve as benchmarks, stimulate motivation, and provide a framework for strategic control.
  • SMART criteria (Specific, Measurable, Attainable, Relevant, Timely) should be used for functional strategies.

Types of Strategic Objectives

  • Financial objectives focus on profitability and value creation (e.g., profits, share price, return on assets).
  • Non-financial objectives are related to how the firm competes (e.g., market share, cost-cutting, customer service).
  • Objectives categorized by timeframe (short-term vs. long-term), scope (ambitious vs. impossible), or strategic level (corporate, competitive, functional).

Firm Performance: Value Creation

  • Firm performance measured as an indicator of management's quality of effort and the organization's pursuit of success.
  • Crucial for guiding strategic decisions, assessing success/failure, and assessing management team quality.
  • Performance measured by accounting indicators (profit/return) or economic indicators (e.g., EBITDA, EBIT, NI).
  • Value measures consider the future rent or earnings capacity → determined by the firms theoretical and market value.

Corporate Stakeholders and Corporate Governance

  • Stakeholders (people/groups) are related to the firm, with their objectives linked to the firm's operations.
  • Objectives of stakeholders often come into conflict with overall firm objectives.
  • Stakeholder analysis critical for prioritizing stakeholders and allocating resources.
  • Crucial stakeholder: high interest, social legitimacy, and power to influence firm objectives.

Corporate Governance

  • Diverging interests and information asymmetry between owners/management are an essential consideration for companies.
  • Internal mechanisms (e.g., direct supervision by the Board of Directors) and external mechanisms (e.g., the market for corporate control) regulate this potential clash of interests.
  • Compensation of managers (incentive schemes) and their contracts are key considerations in aligning their interests with the firm's objectives.

Corporate Social Responsibility

  • Firm's approach to society's demands on firm operations, measuring social costs, and defining its social role
  • Includes social responsibility in relation to all stakeholders, and the need for economic activity to also consider social objectives
  • Firm's social responsibilities in various levels: quality of life (raising standards), social action/investment (supporting community needs), ethical-moral aspects(considering stakeholder expectations)

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Tema 2 PDF

Description

This quiz explores the core concepts of strategic management, including the importance of vision, mission, strategic objectives, and values in guiding a firm's future direction. It discusses how these elements collectively contribute to an organization's success and stability over time. Test your understanding of how a strong vision shapes a company's aspirations and operations.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser