REVIEWER (STRA) - Midterms PDF

REVIEWER (STRA) - Midterms Chapter 3: Assessing the Internal Environment of the Firm The Limitations of SWOT Analysis While SWOT analysis is useful, it has limitations: Strengths may not lead to an advantage. SWOT’s focus on the external environment is too narrow. SWOT provides a one-...

REVIEWER (STRA) - Midterms Chapter 3: Assessing the Internal Environment of the Firm The Limitations of SWOT Analysis While SWOT analysis is useful, it has limitations: Strengths may not lead to an advantage. SWOT’s focus on the external environment is too narrow. SWOT provides a one-shot view of a moving target. SWOT overemphasizes a single dimension of strategy. Value-Chain Analysis Value-chain analysis - looks at the sequential process of value-creating activities. Value is the amount buyers are willing to pay for what a firm provides. It investigates how value is created within the organization, and how it’s created for other organizations in the overall supply chain or distribution channel. Value received must exceed the costs of production. Example: Streamlining the Value Chain: IBM and SAP partnered to help firms reduce inefficiencies and improve operational effectiveness. Benefits of value chain streamlining: Commonality between parts & suppliers. Integration of sales forecasting and inventory management. Lowered transaction, infrastructure, and operating costs. Faster delivery to the market. Primary activities contribute to the physical creation of the product or service; the sale and transfer to the buyer; and service after the sale. These activities include: Inbound logistics: Receiving, storing, and distributing inputs to the product. Operations: Transforming inputs into the final product. Outbound logistics: Collecting, storing, and distributing the product or service to buyers. Marketing & Sales: Inducing buyers to make purchases. Service: Providing service to enhance or maintain the value of the product. Support activities add value by: Directly supporting the primary activities. Adding value through relationships with primary activities and other support activities. These activities include:  Procurement: How the firm purchases inputs used in its value chain. Technology development: R&D for process & product innovations. Human resource management: Recruitment, hiring, training, and compensation. General administration: Effective planning and coordination. Interrelationships Among Value-Chain Activities Interrelationships among activities within the firm and with external stakeholders (e.g., customers and suppliers) must not be ignored. Managers must expand the value chain by exchanging resources. Example: The Value Chain in Service Organizations Retail: Primary Value-Chain Activities 1. Partnering with vendors 2. Purchasing goods 3. Managing and distributing inventory 4. Operating stores 5. Marketing and selling Engineering Services: Primary Value-Chain Activities 1. Research and development 2. Engineering 3. Designs and solutions 4. Marketing and sales 5. Service Resource-Based View of the Firm (RBV) RBV combines an internal analysis of a company with an external analysis of its competitive environment. Resources can lead to a competitive advantage if they are: Valuable: Useful in formulating and implementing strategies. Rare: Uncommon or difficult to exploit. Difficult to imitate: Due to physical uniqueness, path dependency, causal ambiguity, or social complexity. Difficult to substitute: Cannot be replaced by strategically equivalent resources or capabilities. Sources of Inimitability: Physical uniqueness: Resources that are unique. Path dependency: Scarcity due to past development or accumulation. Causal ambiguity: Difficulty in explaining what caused the resource to exist or how to replicate it. Social complexity: Results from social engineering, such as interpersonal relationships.  Types of Firm Resources: a. Tangible resources are assets that are relatively easy to identify: Physical assets (e.g., plant, equipment). Financial assets (e.g., cash, borrowing capacity). Technological resources (e.g., patents, trademarks). Organizational resources (e.g., planning systems). b. Intangible resources are difficult for competitors to imitate, embedded in unique routines and practices: Human resources (e.g., trust, experience, managerial skills). Innovation resources (e.g., technical expertise, capabilities). Reputation resources (e.g., brand names, reputation for fairness). c. Organizational capabilities: Competencies or skills that combine tangible and intangible resources to transform inputs into outputs (e.g., outstanding customer service, excellent product development capabilities, superb innovation processes and flexibility in manufacturing processes, ability to hire, motivate and retain human capital). The Generation and Distribution of the Firm’s Profits Four factors explain the extent to which employees and managers can obtain a proportionately high level of the profits they generate: Employee bargaining power. Employee replacement cost. Employee exit costs. Manager bargaining power. Evaluating Firm Performance  FINANCIAL RATIO ANALYSIS Balance sheet Income statement Market valuation. Historical comparison Comparison with industry norms Comparison with key competitors. BALANCED SCORECARD STAKEHOLDER PERSPECTIVE Stakeholder satisfaction (e.g., employees, owners, customers). Internal processes, Innovation and learning, Financial perspectives. Financial Ratio Analysis ********** Financial ratio analysis is a powerful tool for evaluating a firm’s performance. It provides insights into various aspects of financial health, including liquidity, profitability, and efficiency. ************ Five types of financial ratios: 1. Short-term solvency or liquidity. 2. Long-term solvency measures. 3. Asset management or turnover. 4. Profitability. 5. Market value. Meaningful ratio analysis requires: Analysis of how ratios change over time. Understanding the interrelationship between ratios. The Balanced Scorecard ****** The Balanced Scorecard is a strategic management tool that measures performance from multiple perspectives, ensuring that a firm’s strategy aligns with both financial and non-financial goals. ***** A comprehensive tool for integrating various performance evaluation factors: Customer perspective: How customers see the firm (time, quality, service, cost). Internal perspective: What the firm must excel at to satisfy customer needs (business processes, decisions, resources). Innovation & learning perspective: Ability to improve and create value (human capital, information capital, organizational capital). Financial perspective: How the firm’s strategies contribute to profitability, growth, and shareholder value. Limitations of the Balanced Scorecard Requires proper execution and commitment to learning.  Needs employee involvement and a focus on continuous process improvement. Involves a cultural change and needs a focus on nonfinancial measures rather than just financial ones. Requires accurate data on actual performance. Chapter 4: Recognizing a Firm’s Intellectual Assets: Moving Beyond a Firm’s Tangible Resources The Central Role of Knowledge A company’s value is not derived solely from its physical assets. Rather, it is based on knowledge, know-how, and intellectual assets, all embedded in people. In the knowledge economy, wealth is increasingly created by effective management of knowledge workers instead of by the efficient control of physical and financial assets. Intellectual capital is a measure of the value of a firm’s intangible assets – the difference between a firm’s market value and book value. It includes: Reputation Employee loyalty and commitment Customer relationships Company values Brand names Experience and skills of employees HUMAN CAPITAL Human capital refers to the individual capabilities, knowledge, skills, and experience of the company’s employees and managers. Social capital refers to the network of relationships that individuals have throughout the organization. Knowledge management is critical to organizational success. Knowledge includes: Explicit knowledge – codified, documented, easily reproduced, and widely distributed. Tacit knowledge – in the minds of employees, based on their experiences and backgrounds. Question Example: Mary Stinson was required to take over a project after the entire team left the company. She was able to reconstruct what the team had accomplished through reading e-mails exchanged by the previous team members. This is an example of: A: Using explicit knowledge. B: Inefficient use of information management. C: Using tacit knowledge. D: All of the above. Human Capital: Three Interdependent Activities 1. Attracting Human Capital: Hire for attitude, train for skill. Emphasis on: General knowledge and experience Social skills Values, beliefs, and attitudes Sound recruiting approaches: Building a pool of qualified candidates Having the right job candidates, not the greatest number of them Networking (current employees may be the best source of new ones, with incentives for referrals). Example: Creative Hiring Practices Online retailer Zappos had 55,000 applicants for 200 jobs in 2010, but only hired a few: Only about one out of 100 applicants passed a hiring process that was weighted 50 percent on job skills and 50 percent on the potential to mesh with Zappos’ culture. 2. Developing Human Capital: Training and development must take place at all levels of the organization. Requires active involvement of leaders at all levels. Includes mentoring and sponsoring lower-level employees. Monitoring progress and tracking development. Evaluating human capital. 360-degree evaluation and feedback systems: Address the limitations of the traditional approach to performance evaluation. Superiors, direct reports, colleagues, and even internal and external customers rate a person’s performance. Complement teamwork, employee involvement, and organizational flattening. 3. Retaining Human Capital: Retention mechanisms must prevent the transfer of valuable and sensitive information outside the organization: Help employees identify with an organization’s mission and values.  Provide challenging work and a stimulating environment. Offer financial and nonfinancial rewards and incentives (money is not the most important reason why people take or leave jobs). Enhancing Human Capital: The Role of Diversity: Sound management of diverse workforces can improve an organization’s effectiveness and competitive advantages in areas such as: Cost, resource acquisition, marketing, creativity, problem-solving, and organizational flexibility. SOCIAL CAPITAL Social capital is the network of friendships and working relationships among talented individuals that helps tie knowledge workers to a given firm. Interaction, sharing, and collaboration develop firm-specific ties, increasing the probability of retaining key knowledge workers. How Social Capital Helps Attract and Retain Talent Hiring via personal (social) networks: Some job candidates may bring other talent with them – the Pied Piper effect. Talent can emigrate from an organization to form startup ventures. Social networks can provide a mechanism for obtaining resources and information from outside the organization. Social Networks Social network analysis depicts the pattern of interactions among individuals and helps diagnose effective and ineffective patterns. It examines: Who links to whom within the network or cluster? Who communicates to whom, and how effective is this communication? Social Network Analysis Closure Relationships and Bridging Relationships in Social Networks Closure Relationships: These relationships refer to the degree to which all members of a social network are connected to one another. High closure relationships suggest that if a person is connected to two others, those two people are also likely to know each other. This creates a more tightly-knit network where trust and cooperation are easier to maintain. Closure relationships tend to foster trust and stronger ties within a group. Bridging Relationships: Bridging relationships exist between individuals who are connected but do not share many mutual ties. These relationships connect otherwise disconnected people, effectively bridging structural holes in the social network. Structural holes refer to gaps between disconnected groups, and bridging these gaps helps spread new information and opportunities across otherwise isolated segments of the network. Overcoming Barriers to Collaboration Effective collaboration requires overcoming barriers such as: The not-invented-here or hoarding barrier (people aren’t willing to provide help).  The search barrier (people are unable to find what they’re looking for). The transfer barrier (people are unable to work with people they don’t know well). To encourage collaboration, leaders can choose a mix of three levers: Unification levers: Create compelling common goals and articulate a strong value of cross-company teamwork. People levers: Get the right people to collaborate on the right projects through T- shaped management. Network levers: Build nimble interpersonal networks across the company. Social Networks: Implications for Career Success Effective social networks provide advantages for both the firm and an individual’s career advancement: Access to private information communicated in the context of personal relationships. Access to public information from sources such as the Internet. Access to diverse skill sets – trading information or skills with people whose experiences differ from one’s own. Access to power. Social Capital: Limitations Social capital has some potential downsides: Groupthink. Dysfunctional human resource practices. Expensive socialization processes (orientation, training). Individuals may distort or selectively use information to favor their preferred courses of action. Using Technology to Leverage Human Capital and Knowledge Technology can leverage human capital and knowledge - by sharing knowledge and information throughout the organization: Conserves resources. Develops products and services. Creates new opportunities. Technology can leverage human capital and knowledge: Within the organization, with customers, and with suppliers. Using Technology to Leverage Human Capital and Knowledge (continued) Using networks to share information and develop products and services: Through e-mail, intra-company news feed, and electronic teams or e-teams. Advantages: Few geographic constraints; access to multiple social contacts. Challenges: Failure to identify team members with the most appropriate knowledge and resources; low cohesion, low trust, lack of shared understanding creates “process loss.” Question Example: Which of the following is NOTan advantage of electronic teams (e-teams)? A: They can facilitate communication. B: They have the potential to acquire a broader range of human capital. C: They can be effective in generating social capital. D: They’re less flexible in responding to unanticipated work challenges. Codifying Knowledge for Competitive Advantage Tacit knowledge: Embedded in personal experience. Shared only with the consent and participation of the individual. Explicit (codified) knowledge: Can be documented. Can be widely distributed. Can be easily replicated. Can be reused many times at very low cost. Has the organization effectively used technology to codify knowledge for competitive advantage? Protecting Intellectual Assets Intellectual Property (IP) Protection: Intellectual property rights are more complex to define and protect than property rights for physical assets. Unlike physical assets, intellectual property can be easily stolen. If IP rights are not reliably protected by the state, there is little incentive to develop new products and services. Example: Dippin’ Dots Patent Challenge Dippin' Dots: Dippin' Dots is a product consisting of tiny beads of ice cream, yogurt, sherbet, and flavored ice. It was created by microbiologist and founder Curt Jones. Ten years after its founding, Dippin' Dots lost the patent for its product. This allowed competitors to copy the process, undermining its unique market position. As a result, three years later, Dippin' Dots filed for bankruptcy due to the loss of its competitive advantage and market share. Protecting Intellectual Assets and Dynamic Capabilities Dynamic Capabilities: Dynamic capabilities refer to an organization's ability to build and protect a competitive advantage. This involves leveraging knowledge, assets, competencies, and complementary assets and technologies.  It also requires the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities. Dynamic capabilities include internal processes and routines that enable: Product development Strategic decision-making Forming alliances or making acquisitions Recognizing Intellectual Assets: Intangible Resources Human Capital: The ability of the organization to attract, develop, and retain talent is critical. It is important for the organization to value diversity as part of its talent management strategy. Social Capital: Social capital refers to the positive personal and professional relationships among employees. Within the organization, the social networks should have appropriate levels of both closure and bridging relationships to maximize their value and functionality. Technology: Technology plays a crucial role in transferring best practices across the organization. It also helps codify knowledge and develop dynamic capabilities, which are essential for maintaining competitive advantage.