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Who bears the responsibility for the overall performance of the company or for one of its major self contained subunits or divisions?

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Chapter 1Astrategyis a set of related actions that managers take to increase their company’sperformance.Strategic leadershipis about how to most effectively manage a company’s strategy-makingprocess to create competitive advantage.The strategy-making processis the process bywhich managers select and then implement a set of strategies that aim to achieve acompetitive advantage. Strategy formulation is the task of selecting strategies, whereasstrategy implementation is the task of putting strategies into action, which includes designing,delivering, and supporting products; improving the efficiency and effectiveness of operations;and designing a company’s organizational structure, control systems, and culture.Strategic leadershipis concerned with managing the strategy-making process to increasethe performance of a company, thereby increasing the value of the enterprise to its ownersand shareholders.Risk capitalis capital that cannot be recovered if a company fails and goes bankrupt.Byshareholder valuewe mean the returns that shareholders earn from purchasing sharesin a company. These returns come from two sources: (1) capital appreciation in the value of acompany’s shares and (2) dividend payments.One way of measuring the profi tability of a company is by the return that it makes on thecapital invested in the enterprise.Thereturn on invested capital(ROIC) that a companyearns is defined as its net profi t over the capital invested in the firm (profit/capital invested).Bynet profitwe mean net income after tax. Bycapitalwe mean the sum of money investedin the company: that is, stockholders’ equity plus debt owed to creditors.The profit growthof a company can be measured by the increase in net profit over time. Acompany can grow its profits if it sells products in markets that are growing rapidly, gainsmarket share from rivals, increases the amount it sells to existing customers, expandsoverseas, or diversifies profitably into new lines of business.What shareholders want to see, and what managers must try to deliver through strategicleadership, is profitable growth: that is, high profitability and sustainable profit growth.A company is said to havea competitive advantageover its rivals when its profitability isgreater than the average profitability and profit growth of other companies competing for thesame set of customers. A company has asustained competitive advantagewhen itsstrategies enableit to maintain above-average profitability for a number of years.A business modelis a manager’s conception of how the set of strategies his companypursues should mesh together into a congruent whole, enabling the company to gain acompetitive advantage and achieve superior profi tability and profit growth. The businessmodel—known as the self-service supermarket business model—was fi rst developed bygrocery retailers in the 1950s and later refi ned and improved on by general merchandisers

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Essentials of Strategic Management 3rd Edition Study Chpt 1-4

QuestionAnswer
Strategy A set of actions that managers take to increase their companies performance relative to rivals
Profitability The return that a company makes on the capital invested in the enterprise.
Competitive Advantage The advantage over rivals achieved when a company’s profitability is greater than the average profitability of all firms in its industry
Sustained Competitive Advantage The competitive advantage achieved when a company is able to maintain above average profitability for a number of years.
General Managers Managers who bear responsibility for the overall performance of the company or for that of one of its major self contained subunits or divisions
Functional Managers Managers responsible for supervising a particular function – that is, a task, activity, or operation, like accounting, marketing, research and development, information tech or logistics.
Multidivisional Company A company that competes in several different businesses and had created a separate, self contained division to manage each of them
Business Unit A self contained division that provides a product or service for a particular market.
The Strategic Planning Process 1-3 Select Corporate Mission and major corp goals Analyze the org external competitive environment and identify opps. and threats. Analyze the orgs internal op environment to identify the org’s strengths and weaknesses. Review
The Strategic Planning Process 4-5 Select strategies that build on the orgs strengths and correct its weaknesses in order to take advantage of ext opps and counter external threats. Implement strategies. (In Layout Diagram not the list) Progress
Strategy Formulation Analyzing the orgs external and internal environments and then selecting appropriate environments
Strategy Implementation Putting Strategies into action
Mission Statement (p.9) Provides the framework or context within which strategies are formulated
External Analysis Identifies strategic opps and threats in the org’s operating environment that will affect how it pursues its mission
Internal Analysis Pinpoints the strengths and weaknesses of the org
SWOT Analysis The comparison of strengths, weaknesses, opps and threats.
Autonomous Action Action taken by lower-level managers who, on their own initiative formulate new strategies and work to persuade top-level managers to alter the strategic priorities of a company.
Emergent Strategies Strategies that “emerge” in the absence of planning
Scenario Planning Formulating plans that are based on “what if” scenarios about the future
Cognitive Biases Systematic errors in human decision making that arise from the way people process information
Prior Hypothesis Bias A cognitive bias that occurs when decision –makers who have strong prior beliefs tend to make decisions on the basis of these beliefs, even when presented with evidence that their beliefs are wrong.
Reasoning by Analogy A cognitive bias that involves the use of simple analogies to make sense out of complex problems
Representativeness A cognitive bias rooted in the tendency to generalize from a small sample or even a single vivid anecdote.
Illusion of control A cognitive bias rooted in the tendancy to overestimate one’s ability to control events.
Devil’s Advocacy A technique in which one member of a decision-making group acts as a devil’s advocate, bringing out all the considerations that might make the proposal unacceptable.
Dialectic Inquiry The generation of a plan, a thesis, and a counter plan, an antithesis that reflects plausible but conflicting courses of action
Stakeholders Individuals or groups with an interest, claim, or stake in the company, and how well is performs.
Corporate Governance The mechanisms that exist to ensure that managers pursue strategies in the interests of an important stakeholder group, the shareholders
Internal Stakeholders • Stockholders • Employees • Managers • Senior Executives • Board Members
External Stakeholders • Customers • Suppliers • Creditors • Governments • Unions • Local Communities • General Public
Mission What it is that the company exists to do.
Vision The desired future state of a company
Values Statements of how managers and employees of a company should conduct themselves how they should do business, and what kind of organization they should build to help a company achieve its mission.
Organizational Culture The set of values, norms, and standards that control how employees work to achieve an organizations mission and goals.
Goal A precise and measurable desired future state that a company attempts to realize.
Risk Capital Equity capital for which there is no guarantee that stockholders will ever recoup their investment or a decent return.
Agency Problem A problem that arises when managers pursue strategies that are not in the interest of stockholders.
Agency Theory A theory dealing with the problems that can arise in a business relationship when one person delegates decision-making authority to another.
Agency Relationship A relationship that arises whenever one party delegates decisions-making authority or control over resources to another
Principal A person delegating authority to an agent, who acts on the principal’s behalf.
Agent A person to whom authority is delegated by a principal
Information Asymmetry A situation in which one party to exchange has more information about the exchange than the other party.
Governance Mechanism Mechanisms that principals put in place to align incentives between principals and agents to monitor and control agents.
Governance Mechanisms put in place to protect the principals • Board of Directors • Stock Based Compensation • Financial Statements and Auditors • Takeover constraints
Takeover Constraints The risk of being acquired by another company
Ethics Accepted principles of right or wrong that govern the conduct of a person, the behavior of members of a profession, or the actions of an organization
Business Ethics Accepted principles of right and wrong governing the conduct of business people
Ethical Dilemmas Situations where there is no agreement over exactly what the accepted principles of right and wrong are, or where none of the available alternatives seems ethically acceptable.
Self-Dealing Occurs when manages find a way to feather their own nests with corporate monies
Information Manipulation Occurs when managers use their control over corporate data to distort or hide information in order to enhance their own financial situation or the competitive position of the firm.
Anti-competitive behavior Actions aimed at harming actual or potential competitors most often by using monopoly power, thereby enhancing the long run prospects of the firm.
Opportunistic Exploitation Occurs when the managers of a firm seek to unilaterally rewrite the terms of a contract with suppliers, buyers, or complement providers in a way that more favorable to the firm, often using their power to force the revision through.
Substandard working conditions Occurs when managers under invest in working conditions, or pay employees below market rates, in order to reduce their costs of production.
Environmental degradation Occurs when a firm takes actions that directly or indirectly result in pollution or other forms of environmental harm.
Corruption Arises in a business context when managers pay bribes to gain access to lucrative business contracts.
Behaving Ethically • Hiring and Promotion • Organizational Culture and Leadership • Decision making process • Ethics Officers • Strong Corporate governance • Moral Courage
Code of Ethics A formal statement of the ethical principles a business adheres to
Opportunities Opportunities arise when a company can take advantage of conditions in its environment to formulate and implement strategies that enable it to become more profitable.
Threats Threats arise when conditions in the external environment endanger the integrity and profitability of the company’s business.
Industry A group of companies offering products or services that are close substitutes for each other. that is, products or services that satisfy the same basic customer needs.
Competitors Enterprises that serve the same basic customer needs
5 Forces of Competition • Risk of Entry by potential competitors • Rivalry – intensity of, among established firms • Bargaining power of buyers • Bargaining power of suppliers • Threat of substitutes
Factors of Risk of Entry • Barriers to Entry • Economies of Scale • Brand Loyalty • Absolute Cost Advantage • Switching Costs • Government Regulation
Potential Competitors Companies that are not currently competing in an industry but have the capability to do so if they choose.
Barriers to Entry Factors that make it costly for companies to enter an industry.
Economies of Scale Reduction in unit costs attributed to a larger output
Brand of Loyalty Preference of consumers for the products of established companies
Absolute Cost Advantage A cost advantage that is enjoyed by incumbents in an industry and that new entrants cannot expect to match.
Switching Costs Costs that consumers must bear to switch from the products offered by one established company to the products offered by a new entrant.
Power of Buyers - The ability of buyers to bargain down prices charged by companies in the industry or to raise the costs of companies in the industry by demanding better quality and service.
Bargaining Power of Suppliers The ability of suppliers to raise the price of inputs or to raise the costs of the industry in other ways.
Substitute Products The products of different businesses or industries that can satisfy similar customer needs
Strategic Groups Groups of companies in which each company follows a strategy that is similar to that pursued by other companies in the group, but different from strategies followed by companies in other groups
Mobility Barriers Within-industry factors that inhibit the movement of companies between strategic groups
Embryonic Industries An industry that is just beginning to develop
Growth Industry An industry where demand is expanding as first-time consumers enter the market
Industry Shakeout When demand approaches saturation levels: most of the demand is limited to replacement because there are fewer potential first-time buyers.
Mature Stage The stage in which the market is saturated, demand is limited to replacement demand, and growth is slow
Decline Stage The stage in which primary demand is declining
Macroenvironment The broader economic global, technological, demographic, social, and political context in which an industry is embed. All of which affect from the outside, the 5 forces of competition.
Global Forces Global Trade barriers being taken down
Technological Forces Upgrade in technologies changing competition and profit margins.
Demographic Forces Are outcomes of changes in the characteristics of a population, such as age gender, ethnic origin, race, sexual orientation, and social class.
Social Forces refer to the way in which changed social morals and values affect an industry.
Political and Legal Forces Are outcomes of changes in laws and regulations. Results from political and legal developments within society that significantly affect managers/companies.
Efficiency The quantity of inputs that it takes to produce a given output (that is effiency = output/inputs)
Employee Production - Output per employee
Capital Productivity Output per unit of invested capital
Superior Quality When customers perceive that the attributes of a product provide them with higher value than attributes of products sold by rivals.
Differentiated When a product, while having substitutes, sticks out by means of its superior quality/attributes/workmanship etc as perceived by the customer.
Quality as excellence 1 of the 2 measures of attributes customers use to measure the overall quality of a product this specifically refers to the product design, aesthetic appeal, features, functional use…
Quality as reliability 1 of the 2 measures of attributes customers use to measure the overall quality of a product this specifically refers to consistency of job performance in a product or service, doing the job well, doesn’t break etc..
Innovation The creation of new products or processes
Product Innovation The development of products that are new to the world or have attributes superior to those of existing products
Process Innovation The development of a new process for producing products and delivering them to customers
Customer Response Time The time that it takes for a good to be delivered or a service to be preformed
Value Chain The idea that a company is a chain for activities for transforming inputs into outputs that customer’s value
Primary Activities Activates related to the design, creation, and delivery of the product, its marketing and its support and after sale service.
Support Activities Activities of the value chain that produce inputs that allow the primary process to take place


Who is responsible for the overall performance and effectiveness of an organization?

General managers are responsible for the overall performance of an organization or one of its major self-contained subunits or divisions. Functional managers lead a particular function or a subunit within a function.

Are responsible for the specific business functions or operations that constitute a company or one of its divisions?

Functional-level managers are responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, and so on) that constitute a company or one of its divisions.
A strategy is a set of related actions that managers take to increase their company's performance. For most, if not all, companies, achieving superior performance relative to rivals is the ultimate challenge. If a company's strategies result in superior performance, it is said to have a competitive advantage.

At what level is the overall strategic plan for the entire business decided?

The corporate level is the highest, and therefore the most broad, level of strategy in business. Corporate-level strategy should define your organization's main purpose. It should also direct all your downstream decision-making.

What is typically thought of in terms of one company's profitability relative to that of other companies in the same or a similar type of business or industry?

Superior performances is typically thought of in terms of one company's profitability relative to that of other companies in the same or a similar kind of business or industry. The more efficient a company is, the higher are its profitability and return on invested capital.

bears responsibility performance company major contained subunits divisions

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