Strategic Management Basics

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary role of the board of directors in a company?

Hiring independent auditors to manage the company

Directly managing daily operations of the firm

Setting the company’s objectives without shareholder input

Representing shareholders in decision-making and oversight (correct)

Which of the following best describes inside directors?

Directors with no financial interest in the company

Directors completely independent of any management roles

Directors who are also top managers within the firm (correct)

Directors whose primary role is to represent minority shareholders

What main responsibility does the board of directors NOT typically have?

Acting as a liaison with shareholders

Controlling management echelons

Orienting and driving company policy

Performing daily operational tasks (correct)

How can large shareholders exercise control over company management?

Through proxy voting to influence board decisions Signup and view all the answers

What type of directors are considered to represent the interests of minority shareholders?

Independent directors Signup and view all the answers

Which aspect is NOT a key organizational problem during the implementation phase?

Market analysis techniques Signup and view all the answers

Which internal mechanism allows shareholders to supervise management directly?

Continuous oversight through the board of directors Signup and view all the answers

What is a key role of leadership in defining the corporate vision?

To identify a realistic dream for future success Signup and view all the answers

The corporate mission primarily reflects which of the following aspects?

The identity and personality of the firm Signup and view all the answers

What is a primary function of independent directors?

To act on behalf of the interests of all shareholders, especially minorities Signup and view all the answers

What is a potential downside of having too many inside directors on the board?

Failure to fulfill the board's role of controlling management Signup and view all the answers

Which of the following is true about corporate vision according to Hamel and Prahalad?

It should encourage workforce commitment to its achievement Signup and view all the answers

What trend has been observed in recent years regarding organizational strategy?

Increased emphasis on cognitive and emotional aspects Signup and view all the answers

The definition of the scope of a firm includes all EXCEPT which of the following?

Internal staffing strategies Signup and view all the answers

Why is organizational culture relevant to strategy success during the implementation phase?

It influences how decisions are made within the firm Signup and view all the answers

Which factor should NOT be included in the definition of corporate vision?

An emphasis on immediate profits Signup and view all the answers

What do corporate values primarily guide within a firm?

The achievement of its vision and mission Signup and view all the answers

How do corporate values affect stakeholder relations?

They influence how the firm interacts with stakeholders Signup and view all the answers

Which statement best describes corporate social responsibility (CSR)?

An evaluative approach addressing social impacts of business operations Signup and view all the answers

According to some perspectives, why shouldn’t firms engage in social responsibility?

It is believed to conflict with maximizing profits Signup and view all the answers

What idea does Friedman advocate regarding a firm's responsibility?

Firms should focus solely on providing returns to shareholders Signup and view all the answers

How does corporate social responsibility change the decision-making process within firms?

It incorporates social and environmental impacts into decisions Signup and view all the answers

What is one characteristic of corporate values?

They should be consistent with a firm's vision and mission Signup and view all the answers

In the context of corporate governance, CSR shifts focus from which type of relationship?

Bilateral to multilateral relationship with stakeholders Signup and view all the answers

What do exit barriers do in an industry?

They increase the intensity of competition. Signup and view all the answers

Which factor contributes to increased competitive intensity due to financial considerations?

Greater fixed costs. Signup and view all the answers

How does product differentiation affect competition in an industry?

It enhances customer loyalty and reduces competitive intensity. Signup and view all the answers

What is the impact of switching supplier costs on competition?

They protect suppliers from aggressive competitors. Signup and view all the answers

What effect does installed operating capacity have on competition?

An excess creates supply-demand imbalance and intensifies competition. Signup and view all the answers

What role does competitor diversity play in competition intensity?

It complicates predicting rival behavior, intensifying competition. Signup and view all the answers

What happens when strategic interests among firms in an industry increase?

There's a greater willingness to achieve success through aggressive actions. Signup and view all the answers

What effect do entry barriers generally have on potential new entrants in an industry?

They protect existing firms and sustain their financial expectations. Signup and view all the answers

Which of the following is an example of an absolute entry barrier?

Government licensing requirements Signup and view all the answers

Which of the following is NOT considered an exit barrier?

High competition levels in the market. Signup and view all the answers

How do economies of scale impact potential entrants to an industry?

They create a competitive advantage for established firms. Signup and view all the answers

What role does product differentiation play in an industry?

It favors established firms and acts as a barrier for new entrants. Signup and view all the answers

Which entry barrier is linked to the additional costs that potential competitors incur to enter an industry?

Relative entry barriers Signup and view all the answers

What can happen in an industry that has high profitability but lacks entry barriers?

New firms will rapidly enter, increasing competition. Signup and view all the answers

What is typically a consequence of high start-up capital needs for new entrants in an industry?

It serves as a barrier to entry for many potential competitors. Signup and view all the answers

Which factor can diminish the effectiveness of entry barriers?

The competencies of new entrants Signup and view all the answers

What does the technological criterion define an industry as?

The sum of firms using interchangeable operating processes Signup and view all the answers

How does the market criterion approach the definition of an industry?

By considering the demand for interchangeable products Signup and view all the answers

Which concept refers to the specific selection a firm makes regarding functions and customer groups?

Firm’s business Signup and view all the answers

What are the three dimensions defining the competitive environment according to Abell's approach?

Target customers, functions of products, and technology used Signup and view all the answers

Which statement best describes an industry from the supply side?

A group of firms that share technology to meet all customer needs Signup and view all the answers

What does the term 'market' encompass from the demand side?

The totality of firms serving the same function for a customer group Signup and view all the answers

What is the primary focus of strategic analysis concerning a firm’s competitive environment?

Identifying key competitors, customers, and suppliers Signup and view all the answers

How can an industry be defined in relation to functions covered?

As firms striving to serve all possible functions for customer groups Signup and view all the answers

Study Notes

Strategic Management Decisions

Strategic management emerged in the 1960s.
Pioneers include Chandler, Boston Consulting Group, Andrews, Ansoff, and Porter (5 Forces).
Strategic decisions aim to enhance firm competitiveness and improve performance.

Firm-Environment Analysis

The interplay between the firm and its environment (internal and external) is central to strategic management.
Factors such as stakeholders, strategy, and performance are key elements to be analyzed.

Academic Contributions

Economic theories like Agency Theory and Transaction Cost Theory are relevant.
Industrial Organization, Organization Theory, and Behavioral Sciences (Psychology) contribute.
International academic associations and societies play a role in advancing the field.

Strategic Analysis

Strategic analysis involves research on a firm and its environment to formulate a strategy.
This includes identifying and evaluating relevant data.
The internal and external environments need to be analyzed.
Analytical tools include Porter's Five Forces, SWOT, and Value Chain Analysis.

Strategic Formulation

Strategic formulation is the process of defining clear objectives and creating a plan to achieve them.
It integrates insights from various functional areas (e.g., marketing, finance, operations).
The goal is to establish a competitive advantage and sustainable growth.

Strategic Implementation

Strategy implementation involves executing the formulated plan.
Feedback and status reports are crucial for assessing performance and adjustments.
Effective communication and suitable tools facilitate successful implementation and team development.
Key aspects include concept definition, dynamics of firm's relations with environment and use of resources.

Strategic Decisions Characteristics

High Uncertainty.
BANI environment (Business, Artificial intelligence, Natural, and Irrational).
Increasingly globalized markets.

Levels of Strategy

Corporate strategy focuses on long-term objectives for the entire company.
Business unit strategy focuses on segments and enhancing competitive advantage for specific products or services.
Functional strategy guides individual departments on how to execute their specific roles within the business, covering operations, marketing, finance, and human resources.

Strategic Management Process

Includes analysis, formulation, and implementation.
Internal/external analysis (strengths, weaknesses, opportunities, and threats).
Formulating competitive and corporate strategies.
Implementation with suitable, feasible, and acceptable strategies.
Strategic control, or reviewing the decision process.

Responsibility for Strategy

Top management, the board of directors, and strategic planning staff are key.
Top management is mainly responsible for strategy adoption and implementation.
The board oversees the overall process.
Strategic staff provides advisory and analytical support.

Strategic Fit and Change

Strategic fit refers to the alignment between the firm's strategy and its context, including available resources and capabilities.
Firms often need to adapt their strategies in response to changes in the environment.

Approaches to Strategic Management

Rational approach—based on formal analysis.
Organizational approach—considering human behavior in decision-making.
Holistic approach—combining economic considerations with organizational implications.

Stakeholders and Corporate Governance

Stakeholders are individuals or groups affected by a firm's activities.
Stakeholder groups (shareholders, employees, customers, communities, and the state) have specific objectives.
Achieving equilibrium among stakeholder interests is crucial for sustainable success.
Governance is about controlling management by shareholders through internal and external mechanisms.

Firm's Future Direction and Values

Defining the firm's vision and mission.
Setting measurable and challenging strategic objectives.
Establishing company values to guide actions.

Firm Performance and Value Creation

Assessing the quality of the management team as well as the strategies implemented.
Maximizing shareholder value (accounting profit for owners, return on investment, and EVA).

Understanding business operations' impact on society and the environment.
Socially Responsible Business conduct: actions, policies, and strategies to benefit society in addition to profit generation.
Implementing ethical behavior and social responsibility in the company operations and relationships. This means observing public values.

Competitive Analysis

Determining the scope of industry competition.
Identifying competitors.
Evaluating the intensity of competitive forces and their effects on profitability.
Various tools for this purpose include the Five Forces analysis, Porter’s Diamond model, and an analysis of strategic groups.

Business Ethics

Understanding and applying ethical principles in business operations.
Defining acceptable behaviors.
Highlighting the importance and consequences of ethical conduct relating to stakeholders and customers.

Studying That Suits You

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

Description

Test your knowledge on the foundations of strategic management, including key figures and economic theories. Explore the relationship between firms and their environments and how this impacts decision-making. Understand the contributions of various academic fields to strategic analysis.