Strategic Management Basics

The alignment of goals between shareholders, who invest in a company, and management, responsible for running it.

The process by which shareholders exert influence over management and ensure that their interests are protected.

Mechanisms within a company designed by shareholders to directly monitor top management. These include the board of directors and internal audits.

Direct supervision by shareholders involving monitoring and ensuring managers act in their best interest.

The body representing shareholders within a company and tasked with oversight of management.

Board members who are also senior executives within the company, often with conflicting interests.

Board members representing shareholders, without holding a management position within the company.

Outside directors representing minority shareholders or the company's wider ownership structure.

Guiding principles that define how a company behaves and operates, serving as a framework for achieving its vision and mission.

A company's approach to acknowledging and addressing societal concerns related to its operations, including environmental and social impact.

Corporate values guide a company's actions in a way that aligns with its overall goals and mission.

Corporate values are operating guidelines that shape the conduct of employees within an organization.

Corporate values reflect a company's relationship with its various stakeholders, including customers, employees, investors, and the community.

Some argue that corporate social responsibility is incompatible with maximizing profits because it can be seen as a self-imposed constraint.

Others argue that corporate social responsibility can actually help create value for shareholders by building a positive reputation and attracting investors.

Corporate social responsibility can lead to a multilateral governance model, where all stakeholders, not just shareholders, have a voice.

A long-term, aspirational statement about what an organization wants to become. It outlines the desired state of the organization in the distant future, typically 5-10 years or more. It should be inspiring, realistic, and stable over time.

A concise statement that defines the organization's purpose, identity, and reason for existence. It explains what the company does, for whom, and why it matters. It should be stable over time but also open to adaptation as the organization evolves.

Specifically defined, measurable, achievable, relevant, and time-bound goals that outline how the company will achieve its vision and mission. They offer a clear roadmap for action and provide a framework for evaluating progress.

Fundamental beliefs and principles that guide the organization's behavior. They define what the company stands for and shape the ethical and cultural framework within which all decisions and actions are made. They should provide a compass for navigating the company's path toward achieving its goals.

The process of changing the organization's structure, processes, or systems to align them with the strategic goals. This may involve restructuring departments, introducing new technologies, or adopting different management practices.

The way an organization is structured, including its hierarchy, reporting lines, and decision-making processes. This structure should support the achievement of the strategic goals.

The role of senior leaders in setting the strategic direction, inspiring employees, and motivating them to achieve company goals. Effective leaders communicate the vision and mission clearly, provide resources, and create a culture that supports strategic success. This requires strategic leadership that knows how to drive the organization's vision, mission, and objectives into action.

Strategies to attract, develop, and retain employees who align with the company's culture and values. These strategies should focus on building a skilled and engaged workforce that can contribute to achieving the strategic goals.

New businesses attempting to enter an established industry.

Factors making it difficult for new companies to enter an industry.

Cost advantages enjoyed by existing companies in an industry due to their size and experience.

Advantages held by existing companies, such as patents, access to raw materials, or special locations.

The degree to which customers are willing to switch from a current product to a new one.

The ability of existing companies to differentiate their products or services from those offered by new entrants.

Government policies that favor existing companies, such as subsidies or restrictions on licenses.

The capital required to start a business in a particular industry.

Groups of firms that use similar production methods or raw materials to make related products. This definition focuses on how companies make things.

Groups of firms that make products that meet similar customer needs and are considered interchangeable. It emphasizes the customer’s perspective.

A specific function within an industry that a firm chooses to serve. This defines a company's specific area of operation.

The sum of companies that cater to the same customer needs with the same product function, regardless of their industry or technology.

All the companies within an industry, regardless of their specific business or target market.

The environment in which a company competes. This includes competitors, customers, and suppliers. The concept of a market is closely related to this environment.

The process of identifying an industry's key components including customer groups, needs they meet, and the technology used to serve them.

The way a product or service is delivered to a customer. This includes the technology, process, and resources used.

Factors that make it difficult for companies to leave an industry, such as specialized assets, fixed exit costs, or strategic interrelationships between businesses.

When a company has more fixed costs than variable costs, they need to produce a lot to decrease their average cost per unit, increasing competition.

The expenses a customer faces when switching from one supplier to another. Higher switching costs make it harder for competitors to attract customers, reducing competition.

When an industry has too much production capacity compared to demand, companies have to compete aggressively to sell their products.

The diversity in the strategies, goals, sizes, and backgrounds of competitors in an industry can make competition difficult to predict and manage.

When many companies are interested in the success of an industry, competition intensifies as they fight for market share and profitability.

The number and strength of competitors in an industry, playing a major role in determining the competitive intensity.