Strategic Management Quiz

Defining Strategic Management

• Strategy is about making choices, such as what products or services to sell, the right balance of labor and capital, and where to locate.
• Studying strategic management involves learning about various models and case studies on how companies made strategic choices.

Henry Mintzberg's 5 P's of Strategy

• Strategy as a Plan: a carefully crafted set of steps to be successful.
• Strategy as a Ploy: a specific move to outwit or trick competitors.
• Strategy as a Pattern: the degree of consistency in a firm's strategic actions.
• Strategy as a Position: a firm's place in the industry relative to its competitors.
• Strategy as a Perspective: how executives interpret the landscape around them.

Types of Strategies

• Intended Strategy: the strategy an organization hopes to execute.
• Deliberate Strategy: the part of the intended strategy that the firm continues to pursue over time.
• Emergent Strategy: an unplanned strategy that arises in response to unexpected opportunities and challenges.
• Realized Strategy: the strategy that an organization actually follows, which is a product of intended, deliberate, and emergent strategies.

The History of Strategic Management

• The Old Testament of the Bible discusses strategy, with Moses delegating authority to other leaders.
• Sun Tzu's idea of winning a battle without fighting is the best way to win.
• The Trojan horse is a famous example of strategy in ancient times.
• King Arthur and the Round Table's mission to search for the Holy Grail is an example of strategic management.
• Two wars fought on American soil, the American Revolution and the American Civil War, provide important lessons about strategic management.

Strategic Management as a Field of Study

• The field of strategic management developed over the past century.
• Frederick W. Taylor's "The Principles of Scientific Management" (1911) emphasized maximizing organizational performance.
• Henry Ford's assembly lines for creating automobiles lowered costs dramatically.
• Harvard University's business policy course (1912) aimed to identify the one best response to any given problem.
• The Ford Foundation report (1959) recommended that all business schools offer a "capstone" course.

The New Business of Paradigms

• Paradigms are problem-solving systems that influence how we see the world.
• Paradigm shift: switching from one set of rules to another.
• Paradigm effect: a filtering phenomenon that can stop us from finding breakthrough solutions.
• Paradigm paralysis: the belief that things can only be done one way, which can hinder innovation and adaptation.
• Six observations from Joel Barker's "The New Business of Paradigms - Second Edition" include:
  • Paradigms are common and useful, but can also be limiting.
  • Outsiders bring new paradigms.
  • Shifting paradigms takes courage.
  • You can choose to change your paradigm.

Leading Strategically

• Vision: a key tool available to executives to inspire people, which describes what the organization hopes to become in the future.
• Mission: captures an organization's identity and provides answers to the fundamental question "Who are we?"
• SMART Goals: Specific, Measurable, Achievable, Realistic, and Time-bound goals guide daily actions.

Assessing Organizational Performance

• Organizational Performance: measures how well an organization achieves its vision, mission, and goals.
• Performance Measures: metrics like profits, stock price, and sales gauge organizational success.
• Performance Referents: benchmarks used to contextualize performance measures.
• The Balanced Scorecard: a tool that helps managers balance financial measures with other performance indicators.
• The Triple Bottom Line: emphasizes three Ps: People, Planet, and Profits.

Entrepreneurial Orientation

• Entrepreneurial Orientation (EO): an organization's processes, practices, and decision-making styles that reflect entrepreneurial behavior.
• Five Dimensions of EO: Autonomy, Competitive Aggressiveness, Innovativeness, Proactiveness, and Risk Taking.
• Value of EO: helps organizations adapt to rapid changes and seize new opportunities.
• Building EO: designing systems and policies that encourage EO, and aligning attitudes and behaviors with EO dimensions.

Evaluating the External Environment

• The Environment: the set of external conditions and forces that an organization operates in.
• General Environment: includes overall societal trends such as social trends, technological trends, demographics, and economic conditions.
• Competitive Environment: consists of multiple organizations that collectively compete with one another.
• Why is it important?: companies need to consider their environment when making decisions because every action creates some degree of change.
• Three reasons why understanding the environment matters: it provides resources, is a source of opportunities and threats, and shapes executive decisions.

Evaluating the General Environment

• PESTEL Analysis: a tool used to organize factors within the general environment and identify how they influence industries and firms.
• The 6 segments of the general environment: Political, Economic, Social, Technological, Environmental, and Legal.

Evaluating the Industry

• Michael Porter's 5 Forces: used to identify how much profit potential exists in an industry.
• The 5 forces: Rivalry among competitors, Potential new entrants, Substitutes for the industry's offerings, Suppliers to the industry, and The industry's buyers.
• Horizontal Integration: a strategy to increase market share by acquiring or merging with other companies in the same industry.
• Vertical Integration: a strategy to increase efficiency by acquiring or merging with suppliers or distributors.### Industry Analysis
• High levels of rivalry reduce the profit potential of an industry
  • Characteristics that affect rivalry:
    • Numerous or equal-sized competitors
    • Slow industry growth
    • Undifferentiated products
    • High fixed costs
    • Exit barriers
    • Large incremental capacity additions for efficiency
    • Perishable products

Threat of Potential New Entrants

• Barriers to entry:
  • Economies of scale
  • Capital requirements
  • Access to distribution channels
  • Government policy
  • Differentiation
  • Switching costs
  • Expected retaliation
  • Cost advantages independent of size

Threat of Substitutes

• Substitutes are offerings that differ from industry goods and services but fill similar needs
• Example: Cooking at home can be a substitute for eating at restaurants

Power of Suppliers

• Suppliers provide essential inputs to firms in the industry
• Examples of suppliers: Sysco (food), restaurant supply stores (equipment), employees (labor)
• Forward vertical integration strategy: a supplier entering the industry to which it supplies products

Power of Buyers

• Buyers purchase goods and services from industry firms
• Characteristics that impact buyer power:
  • Few buyers compared to firms
  • Standardized or undifferentiated products
  • Low switching costs
  • High percentage of buyer's costs
  • Credible threat to integrate backward
  • Limited importance of the product to the buyer

Mapping Strategic Groups

• A strategic group consists of industry competitors with similar characteristics
• Importance of understanding strategic groups:
  • Identifying closest rivals
  • Highlighting alternative paths to success
  • Revealing untapped opportunities

Resource-Based Theory

• Possession of strategic resources provides a competitive advantage
• Types of resources:
  • Tangible resources (e.g., property, equipment, cash)
  • Intangible resources (e.g., skills, reputation, culture)
• Dynamic capabilities: continually updating capabilities to keep pace with environmental changes
• Distinctive competence: a set of activities an organization performs especially well

Intellectual Property

• Legal rights resulting from intellectual activity
• Types of intellectual property:
  • Patents
  • Trademarks
  • Copyrights
  • Trade secrets
• If valuable, rare, and non-substitutable, intellectual property can be a strategic resource

Value Chain

• A value chain charts the path of product creation and sale
• Primary activities: directly involved in creating and distributing goods and services
• Secondary activities: support primary activities
• Supply chain: a broader concept than a value chain; includes all activities involved in creating and distributing a product

WOT Analysis

• Strengths: internal, positive factors
• Weaknesses: internal, negative factors
• Opportunities: external, positive factors
• Threats: external, negative factors

Business-Level Strategies

• Generic strategies:

  • Cost leadership
  • Differentiation
  • Focused cost leadership
  • Focused differentiation
  • Best-cost strategy
  • Stuck in the middle### Business-Level Strategies

• Cost leadership is a business-level strategy that involves achieving efficiency to offer low prices and satisfactory quality to attract customers.

• Cost leaders rely on economies of scale to achieve efficiency and often spend little on advertising, market research, or research and development.

• The emphasis on efficiency makes cost leaders well-positioned to withstand price competition from rivals.

• The presence of a cost leader in an industry tends to discourage new firms from entering the business because they would struggle to attract customers by matching or undercutting the cost leader's prices.

Differentiation

• Differentiation is a business-level strategy that involves offering unique features to convince customers to pay a premium price.
• A firm using a differentiation strategy competes based on uniqueness rather than price while seeking to attract a broad market.
• Effective differentiation creates an ability to obtain premium prices from customers, enabling a firm to enjoy stronger profit margins.
• Differentiation also creates barriers to entry that protect the firm and its industry from new competition.

Focused Strategies

• A focused cost leadership strategy involves competing based on price to target a narrow market.
• A firm using a focused cost leadership strategy charges low prices relative to other firms that compete within the target market.
• A focused differentiation strategy involves offering unique features that fulfill the demands of a narrow market.
• Focused strategies enable firms to develop tremendous expertise about the goods and services they offer.

Organizational Culture

• Organizational culture is the beliefs, values, and behavioral norms shared by organizational members that influence the way they do their work.
• An organization's culture reflects the beliefs, values, and vision of the founder(s).
• Culture influences what organizational members do when confronted with a problem because of the "way things are done around here."

Organizational Culture Leadership

• Leaders are instrumental in creating and changing an organization's culture through their day-to-day actions.
• Leaders create and change culture through direct correspondence between their style and the organization's culture.
• Role modeling is a way leaders signal acceptable and unacceptable actions.

Schein's Model of Organizational Culture

• The three layers of organizational culture are:
  • Artifacts and Behaviors (visible symbols, rituals, physical settings, and behaviors)
  • Espoused Values (stated beliefs, philosophies, norms, and values)
  • Basic Assumptions (unconscious beliefs, perceptions, and feelings deeply embedded within the organization)

Importance of Understanding Culture

• Understanding culture indicates what people in the organization think is important.
• Culture can be a source of competitive advantage.
• Culture serves as a powerful guide for decisions and actions.

Achieving a Healthy Culture

• Change starts at the top.
• Consider culture when hiring.
• Two-way communication is important.
• Authenticity is crucial; do not fake beliefs.

Examples of Organizational Culture Statements

• "We embrace change as a healthy part of growth."
• "The better we treat our employees, the happier our customers."
• "We believe everyone should have a life outside the office."
• "Never hesitate to suggest a better way of doing things."
• Disney: "Each of our companies has a unique ability to harness the imagination in a way that inspires others, improves lives across the world and brings hope, laughter and smiles to those who need it most."