Strategic Management Chapter 1 PDF

Because learning changes everything.® CHAPTER 1 Strategic Management: Creating Competitive Advantages Access the text alternative for slide images. Anatoli Styf/Shutterstock © McGraw Hill LLC. All...

Because learning changes everything.® CHAPTER 1 Strategic Management: Creating Competitive Advantages Access the text alternative for slide images. Anatoli Styf/Shutterstock © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  Two Perspectives of Leadership EXTERNAL CONTROL ROMANTIC VIEW PERSPECTIVE External forces A leader is the key determine the force in the organization’s organization’s success. success. Economic Steve Jobs. downturns. © McGraw Hill LLC 2  Leaders Can Make a Difference Be proactive — anticipate change. Refine strategies continually. Be aware of external opportunities and threats. Understand thoroughly the firm’s resources and capabilities. Make strategic management both a process and a way of thinking throughout the organization. © McGraw Hill LLC 3  Defining Strategic Management Strategic management involves: Analysis. Strategic goals (vision, mission, strategic objectives). Internal and external environment. Decisions — Formulation. What industries should we compete in? How should we compete in those industries? Actions — Implementation of strategy. Allocate necessary resources. Design the organization to bring intended strategies to reality. © McGraw Hill LLC 4  Strategic Management Key attributes of strategic management. Directs the organization toward overall goals and objectives. Includes multiple stakeholders in decision making. Needs to incorporate short-term and long-term perspectives. © McGraw Hill LLC 5  Realized Strategy and Intended Strategy: Usually Not the Same Henry Mintzberg believes: the business environment as far from predictable, thus limiting our ability for analysis; and decisions are seldom based on optimal rationality alone, given the political processes that occur in all organizations. Access the text alternative for slide images. © McGraw Hill LLC Source: Adapted from Mintzberg, H., and Waters, J. A. 1985. Of strategies: Deliberate and emergent. Strategic Management Journal, 6: 257–272. 6  Intended vs. Realized Strategies Intended Strategy Realized Strategy Organizational Decisions are decisions are determined by both determined only analysis (deliberate) by analysis. and unforeseen Intended environmental strategies rarely developments, survive in the unanticipated resource original form. constraints, and/or changes in managerial preferences (emergent). © McGraw Hill LLC 7  Strategy Analysis 1 Strategy analysis is the starting point in the strategic management process. The analysis needs to be done to effectively formulate and implement strategies. It involves careful analysis of the overarching goals of the organization. It requires a thorough analysis of the organization’s external and internal environment. © McGraw Hill LLC 8  Strategy Analysis 2 Analyzing organizational goals and objectives. Establish a hierarchy of goals: Vision. Mission. Strategic Objectives. Analyzing the external environment of the firm. Managers must monitor and scan the environment as well as analyze competitors: General environment. Industry environment. © McGraw Hill LLC 9  Because learning changes everything.® CHAPTER 1 Strategic Management: Creating Competitive Advantages Access the text alternative for slide images. Anatoli Styf/Shutterstock © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  Strategy Formulation 1 Based on strategy analysis, strategy formulation is developed at several levels: Business-level strategy: How to compete in a given business to attain competitive advantage. Corporate-level strategy: What businesses to compete in; how businesses can be managed to achieve synergy. International strategy: What strategies are needed as the business ventures beyond its national boundaries. Entrepreneurial initiatives: How can businesses create new value. © McGraw Hill LLC 2  Strategy Implementation 1 Strategy implementation takes action to implement the formulated strategy: Ensure proper strategic control systems. Establish an appropriate organizational design. Coordinate activities with suppliers, customers, alliance partners. Leadership ensures organizational commitment to excellence and ethical behavior. Promote learning and continuous improvement. © McGraw Hill LLC 3  Strategy Implementation 2 Strategic control and corporate governance. Exercise Informational Control: Monitor and scan the environment. Respond effectively to threats and opportunities. Exercise Behavioral Control: Proper balance of rewards and incentives. Appropriate cultures and boundaries (or constraints). Practice Effective Corporate Governance. © McGraw Hill LLC 4  Corporate Governance and Stakeholder Management Corporate governance is the relationship among various participants in determining the direction and performance of corporations. Primary participants are: Shareholders. Management (led by the Chief Executive Officer). The Board of Directors (BOD). © McGraw Hill LLC 5  Corporate Governance Board of Directors: Elected representatives of the owners. Ensure interests and motives of management are aligned with those of the owners: Create an effective and engaged board. Address shareholder activism. Provide proper managerial rewards and incentives. Establish external control Exhibit 1.4 The Key Elements mechanisms. of Corporate Governance Access the text alternative for slide images. © McGraw Hill LLC 6  Stakeholder Management Exhibit 1.5 An Organization’s Key Stakeholders and the Nature of Their Claims. Stakeholder Group Nature of Claim Stockholders Dividends, capital appreciation Employees Wages, benefits, safe working environment, job security Suppliers Payment on time, assurance of continued relationship Creditors Payment of interest, repayment of principal Customers Value, warranties Government Taxes, compliance with regulations Community Good citizenship behavior such as charities, employment, not polluting the environment © McGraw Hill LLC 7  Two Views of Stakeholder Management ZERO SUM SYMBIOSIS Stakeholders Stakeholders are compete for attention dependent upon and resources. each other for The gain of one is a success and loss to the other. well-being. Stakeholders receive mutual benefits. © McGraw Hill LLC 8  Social Responsibility and Environmental Sustainability Firms have multiple stakeholders and must go beyond a focus solely on financial results. Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of society. Firms can measure a triple bottom line, assessing financial, social, AND environmental performance. Sustainability projects can yield substantial benefits even when they are difficult to quantify. © McGraw Hill LLC 9  Coherence in Strategic Direction 1 Organizations express priorities best through stated goals and objectives that form a hierarchy of goals: Vision evokes powerful and compelling mental images of a shared future. Mission encompasses the organization’s current purpose, basis of competition, and competitive advantage. Strategic objectives operationalize the mission statement with specific yardsticks. © McGraw Hill LLC 10  Coherence in Strategic Direction 2 Exhibit 1.6 A Hierarchy of Goals Access the text alternative for slide images. © McGraw Hill LLC 11  Set Strategic Objectives For objectives to be meaningful, they need to be measurable, specific, appropriate, realistic, and timely. Strategic Objectives (Financial) Increase sales growth 6 percent to 8 percent and accelerate core net earnings growth from 13 percent to 15 percent per share in each of the next 5 years. (Procter and Gamble.) Generate Internet-related revenue of $1.5 billion. (AutoNation) Cut corporate overhead costs by $30 million per year. (Fortune Brands) Strategic Objectives (Nonfinancial) Reduce volatile emissions 15 percent over a 5-year-period, indexed to net sales. (3M) Our goal is to help save 100,000 more lives each year. (Varian Medical Systems) We want to be the top-ranked supplier to our customers. (PPG) © McGraw Hill LLC 12  Because learning changes everything. ® www.mheducation.com © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The success of Apple under its former CEO, Steve Jobs, was largely attributed to the quality of its leader. According to the text, this would be an example of the “romantic” perspective of leadership. 1) ______ ⊚ true ⊚ false 2) Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. 2) ______ ⊚ true ⊚ false 3) According to Henry Mintzberg, a management scholar, most firms do not realize their original intended strategy. 3) ______ ⊚ true ⊚ false 4) The three primary participants in corporate governance are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the employees. 4) ______ ⊚ true ⊚ false 5) Sustainability is being increasingly recognized as a source of cost efficiencies and revenue growth. 5) ______ ⊚ true ⊚ false 6) The vision of an organization is at the top level of its hierarchy of organizational goals. The vision statement should be massively inspiring, overarching, and long term. 6) ______ ⊚ true ⊚ false Version 1 1 MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 7) The text addresses two perspectives of leadership as well as their implications. These two perspectives are 7) ______ A) romantic and unromantic. B) romantic and internal control. C) romantic and external control. D) external control and unromantic. 8) According to the text, the strategic management process entails three ongoing processes. They are 8) ______ A) analyses, actions, and synthesis. B) analyses, synthesis, and decisions. C) analyses, evaluation, and critique. D) analyses, decisions, and actions. 9) According to Henry Mintzberg, the final realized strategy of a firm is 9) ______ A) a combination of deliberate and emergent strategies. B) a combination of deliberate and differentiation strategies. C) not deliberate. D) a result of unrealized intended strategy. 10) Two types of strategic control that firms must exercise for good strategy implementation are________ and________. 10) ______ A) informational; confrontational B) informational; behavioral C) behavioral; financial D) confrontational; behavioral 11) The three participants in corporate governance are the shareholders, 11) ______ A) board of directors, and employees. B) labor unions, and employees. C) board of directors, and management. D) banks and lending institutions, and management. Version 1 2 12) Stakeholders are 12) ______ A) a new way to describe stockholders. B) individuals, groups, and organizations who have a stake in the success of the organization. C) creditors who hold a lien on the assets of the organization. D) attorneys and their clients who sue the organization. 13) Employee stakeholders are concerned with 13) ______ A) wages, benefits, and job security. B) taxes, warranties, and regulations. C) good citizenship behavior. D) dividends. 14) Stockholders as a stakeholder group are interested primarily in 14) ______ A) payment of interest and repayment of principal. B) dividends and capital appreciation. C) value and warranties D) taxes and compliance with regulations. 15) Community stakeholders are concerned primarily with 15) ______ A) product warranties. B) corporate citizenship behavior. C) capital appreciation. D) repayment of principal. 16) According to the text, the triple bottom line approach to corporate accounting includes which three components? 16) ______ A) financial, environmental, and customer B) financial, organizational, and customer C) financial, environmental, and social D) financial, organizational, and psychological Version 1 3 17) The hierarchy of organizational goals is in the following order (least specific to most specific): 17) ______ A) vision statements, strategic objectives, mission statements. B) vision statements, mission statements, strategic objectives. C) mission statements, strategic objectives, vision statements. D) mission statements, vision statements, strategic objectives. 18) Vision statements are used to create a better understanding of the overall________ and________ of the organization. Vision statements are massively inspiring. 18) ______ A) logic; wealth B) outcomes; objectives C) purpose; direction D) impact; structure 19) In contrast to the vision of an organization, its mission should 19) ______ A) be shorter in length. B) encompass all the major rules and regulations of the corporate work force. C) encompass both the purpose of the company as well as the basis of competition. D) be less detailed. 20) The vision and mission statements of a company set the overall direction of the organization. Strategic objectives serve what role? 20) ______ A) operationalize the mission statement B) modify the mission statement C) are a shorter version of the mission statement D) are only clarified by the board of directors 21) Our goal is to help save 100,000 more lives each year. (Varian Medical Systems) This is an example of a 21) ______ A) nonfinancial strategic objective. B) financial strategic objective. C) vision statement. D) mission statement. Version 1 4 Answer Key Test name: Test Bank Chapter (1) 1) TRUE In the romantic view of leadership, the implicit assumption is that the leader is the key force in determining an organization’s success or lack thereof. Consider, for example, the credit that has been bestowed on leaders such as Bill Gates, Andrew Grove, and Jeff Bezos for the tremendous accomplishments when they led their firms: Microsoft, Intel, and Amazon, respectively. Similarly, the emergence of Apple as one of the most valuable firms in the world has been attributed almost entirely to the late Steve Jobs, its former CEO, who died on October 5, 2011. 2) TRUE According to the textbook, this is the definition of strategic management. 3) TRUE Henry Mintzberg states that the intended strategy rarely survives in its original form. Unforeseen environmental developments, unanticipated resource constraints, or changes in managerial preferences may result in at least some parts of the intended strategy remaining unrealized. On the other hand, good managers will want to take advantage of a new opportunity presented by the environment, even if it was not part of the original set of intentions. 4) FALSE The primary participants are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors. 5) TRUE A CEO survey on sustainability by Accenture debunks the notion that sustainability and profitability are mutually exclusive corporate goals. The study found that sustainability is being increasingly recognized as a source of cost efficiencies and revenue growth. In many companies, sustainability activities have led to increases in revenue and profits. 6) TRUE A vision is a goal that is massively inspiring, overarching, and long term. Version 1 5 7) C The two perspectives of leadership are the romantic and the external control perspectives. 8) D The strategic management of an organization entails three ongoing processes: analyses, decisions, and actions. 9) A The final realized strategy of any firm is a combination of deliberate and emergent strategies. 10) B Firms must exercise two types of strategic control. First, informational control requires that organizations continually monitor and scan the environment and respond to threats and opportunities. Second, behavioral control involves the proper balance of rewards and incentives as well as cultures and boundaries (or constraints). 11) C The primary participants in corporate governance are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors. 12) B Stakeholders are those individuals, groups, and organizations that have a stake in the success of the organization, including owners (shareholders in a publicly held corporation), employees, customers, suppliers, the community at large, and so on. 13) A Employees as a stakeholder group are concerned with wages, benefits, safe working environment, and job security. 14) B Stockholders are interested in dividends and capital appreciation. 15) B Community stakeholders are concerned with good citizenship behavior such as charities, employment, and not polluting the environment. 16) C Many companies are now measuring what has been called a triple bottom line. This involves assessing financial, social, and environmental performance. Version 1 6 17) B Organizations express priorities best through stated goals and objectives that form a hierarchy of goals, which includes its vision, mission, and strategic objectives. What visions may lack in specificity, they make up for in their ability to evoke powerful and compelling mental images. On the other hand, strategic objectives tend to be more specific and provide a more direct means of determining if the organization is moving toward broader, overall goals. 18) C A vision is a goal that is massively inspiring, overarching, and long term. 19) C The mission statement of a company differs from its vision in that it encompasses both the purpose of the company as well as the basis of competition and competitive advantage. 20) A Strategic objectives are used to operationalize the mission statement. That is, they help to provide guidance on how the organization can fulfill or move toward the higher goals in the goal hierarchy, that of the mission and vision. 21) A Strategic objectives are used to operationalize the mission statement. This is an example of a nonfinancial strategic objective. Version 1 7  Because learning changes everything.® CHAPTER 2 Analyzing the External Environment of the Firm Access the text alternative for slide images. Anatoli Styf/Shutterstock © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  Enhancing Awareness of the External Environment Exhibit 2.1 Inputs to Forecasting © McGraw Hill LLC 2  Environmental Scanning and Monitoring Environmental scanning involves surveillance of a firm’s external environment: Predicts environmental changes to come. Detects changes already under way. Allows firm to be proactive. Environmental monitoring tracks evolution of environmental trends: Sequences of measurable facts/events. Streams of activities or trends from outside the organization. © McGraw Hill LLC 3  Competitive Intelligence Competitive intelligence Helps firms define and understand their industry. Identifies rivals’ strengths and weaknesses: Collect data on competitors. Interpret intelligence data. Helps firms avoid surprises: Anticipate competitors’ moves. Decrease response time. Potential for unethical behavior while gathering intelligence. © McGraw Hill LLC 4  Environmental Forecasting Environmental forecasting predicts change. Plausible projections about: Direction of environmental change? Scope of environmental change? Speed of environmental change? Intensity of environmental change? © McGraw Hill LLC 5  SWOT Analysis SWOT analysis is a basic technique for analyzing firm and industry conditions. A firm’s internal conditions = Strengths and Weaknesses: Where the firm excels or where it may be lacking. Any environmental or external conditions = Opportunities and Threats: Developments that exist in the general environment. Activities among firms competing for the same customers in an industry. Must consider both internal and external factors simultaneously. © McGraw Hill LLC 6  Because learning changes everything.® CHAPTER 2 Analyzing the External Environment of the Firm Access the text alternative for slide images. Anatoli Styf/Shutterstock © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.  The General Environment The general environment is composed of factors that are both hard to predict and difficult to control: Demographic. Sociocultural. Political/Legal. Technological. Economic. Global. © McGraw Hill LLC 2  The Competitive Environment The competitive environment consists of factors in the task or industry environment that are particularly relevant to a firm’s strategy: Competitors (existing or potential). Including those considering entry into an entirely new industry. Customers (or buyers). Suppliers. © McGraw Hill LLC 3  Porter’s Five Forces Model of Industry Competition Exhibit 2.4 Porter’s Five Forces Model of Industry Competition Access the text alternative for slide images. © McGraw Hill LLC Source: Porter, M. E. 2008. The five competitive forces that shape strategy. Special Issue on HBS Centennial. Harvard Business Review, 86(1): 78–93. 4  The Threat of New Entrants The threat of new entrants – possibility that the profits of established firms in the industry may be eroded by new competitors. Depends on existing barriers to entry: Economies of scale. Product differentiation. Capital requirements. Switching costs. Access to distribution channels. © McGraw Hill LLC 5  The Bargaining Power of Buyers Buyers have bargaining power. Buyers can force down prices, bargain for higher quality or more services, or play competitors against each other. © McGraw Hill LLC 6  The Bargaining Power of Suppliers Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of purchased goods and services. © McGraw Hill LLC 7  The Threat of Substitute Products and Services Substitute products and services limit the potential returns of an industry. Substitutes come from another industry. Substitutes can perform the same function as the industry’s offerings. © McGraw Hill LLC 8  Test Bank Strategic Planning MGT102 Chapter Two True or false questions 1) Environmental scanning tracks the evolution of environmental trends. a) True b) False 2) Competitive intelligence helps firms define and understand their industry. a) True b) False 3) Competitive intelligence has the potential for unethical behavior while gathering intelligence. a) True b) False 4) The internal environment is composed of factors that are both hard to predict and difficult to control. a) True b) False 5) The competitive environment consists of competitors, customers, and suppliers. a) True b) False 6) The threat of new entrants describes possibility that the profits of established firms in the industry may be eroded by new competitors. a) True b) False 7) Suppliers can exert bargaining power by threatening to lower prices or increase the quality of purchased goods and services. a) True b) False Multiple choice questions 1) _______________ involves surveillance of a firm’s external environment: a) Environmental scanning b) Environmental monitoring c) Competitive intelligence d) Environmental forecasts 2) All the following are parts of environmental scanning, except a) Predicting environmental changes to come b) Allowing firm to be proactive c) Streaming of activities or trends from outside d) Detecting changes already under way the organization 3) _________ gives plausible projections about direction, scope, speed, and intensity of environmental change. a) Environmental scanning b) Environmental monitoring c) Competitive intelligence d) Environmental forecasts 4) Which of the following is not true about SWOT analysis? a) It is a basic technique for analyzing firm b) A firm’s external conditions gives and industry conditions strengths and weaknesses c) Any external conditions equals d) Must consider both internal and external opportunities and threats factors simultaneously 5) The ______________ consists of factors in the task or industry environment that are particularly relevant to a firm’s strategy. a) internal environment b) general environment c) competitive environment d) environmental forecasts 6) Buyers have bargaining power, through: a) Buyers can force down prices b) Buyers can play partners with the firm c) Buyers can bargain for lower quality d) Buyers can bargain for fewer services 7) ____________ can perform the same function as the industry’s offerings. a) Substances b) Subtitles c) Substitutes d) Substantial