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Flashcards in Business Strategy Deck (124):


- top managers handle the relationship between the organization, its strategy and its environment
- strategy to attain outcomes consistent with organizational goals and policies (setting the goals is the tricky part)


Strategy FIT Relationships (3)

1. Performance
2. Environment
3. Organization


Strategy Levels (4)

1. Corporate - where to compete?
2. Business - how to compete?
3. Functional - how to contribute?
--> all lead to choice of products, markets, competitors
4. International


Strategic Management Process

Commitments > Decisions > Actions

1. Strategic Competitiveness - achieved when a firm successfully formulates and implements value-creating strategy (i.e. in order to compete)
2. Sustained Competitive Advantage - occurs when a firm develops a strategy that competitors are not simultaneously implementing (unable to duplicate) - the holy grail of strategy
3. Above-Average Returns - returns in excess of what an investor expects to earn from other investments with similar risk (achieved from sustainable competitive advantage)


Challenges of Strategic Management

e.g. Borders
- competitive success is transient - unless care is taken to preserve competitive position


Strategic Management - Two Schools of Thought

1. Industrial Organization Model (the outside environment shapes the firm) - e.g. attractive industry, strategy, assets & skills, strategy implementation
2. Resource-Based Model (inside firm determines strategy) - e.g. resources & capabilities, competitive advantage, then attractive industry, strategy implementation


Strategy Concept Components

1. Goals - provide direction, respond to stakeholders
2. Plans - define strategies, develop via planning, derive from formal analysis
3. Actions - indicate realized strategies, result of planning & adaptation


Coherence in Strategic Direction - Vision (how organizations set goals)

- company vision is at the top of the hierarchy of goals
- can't be too specific
- need a vision even in a small company
- doesn't change
- don't do just anything that will make money - not strategic


Coherence in Strategic Direction - Mission Statement

- mission statement is in the middle of the hierarchy of goals
- can change but do it consciously
- purpose of the company, more specific than the vision
- focused on the means by which the firm will compete
- basis of competitive advantage


Coherence in Strategic Direction - Strategic Objectives

- on the bottom of the hierarchy of goals
- operationalizing the mission statement
- provide guidance how firm can fulfill higher goals
- even more specific, measurable, realistic, timely, challenging, yardstick for incentives


Articulating a Vision (reading)

Yin = core idealology (core values and purpose - company's reason for being) - look inside, can't be fake
Yang = envisioned future (10-30 year BHAG, vivid description)


BHAG (reading)

Big Hairy Audacious Goals - aid long-term vision
- difference between having a goal and taking on a huge, daunting challenge.
- a catalyst for team spirit
- clear finish line


Operational Effectiveness vs. Strategic Positioning (reading)

Operational Effectiveness (OE) = performing similar activities better than rivals perform them. Excellence in activities. (necessary but not sufficient)

Strategic Vision = performing different activities from rivals or performing similar activities in different ways. (firm can only outperform rivals if it can establish a difference it can preserve)


Trade-Offs and Fit (reading)

Trade-Offs are essential to strategy (more of one thing means less of another). Create a need for choice and purposely limit what the company can do e.g. cost and value

Fit drives both competitive advantage and sustainability.. Strategy is about combining activities (activity system). Consistent, activity reinforcement, optimization of effort


Corporate Governance

- a relationship among the stakeholders that is used to determine and control the strategic direction and performance of organizations
- identifies ways to ensure that strategic decisions are made effectively
- used to establish order between firm owners and top-level managers


Separation of Ownership and Managerial Control

- basis of modern firm = shareholders purchase stock and are residual claimants, they reduce risk with diversified portfolios, professional managers make decisions
- modern firm leads to efficient specialization of tasks - stockholders are unperturbed by having to manage the risk


Agency Relationship

Shareholders (principal) = firm owners

Managers (agent) = decision makers

Principal is a risk-bearing specialist that pays compensation to the decision-making specialist (agent)


Agency Problem

- occurs when the desires or goals of the principle and agent conflict and it's difficult or expensive for the principal to verify that the agent has behaved appropriately
- Solution: incentive-based performance contracts, monitoring mechanisms (board of directors) - often come from family and friends so not always at 100% arms length (agency conflict) but do their best


Governance Mechanisms (4)

1. Ownership Concentration - large blocks of shareholders have incentive to monitor closely, may also obtain board seats
2. Board of Directors - insiders, related outsiders, outsiders. Recommended to increase diversity of board and have a formal process to evaluate board
3. Executive Compensation - salary, bonuses, long term compensation, stock ownership - many factors involved
4. Market for Corporate Control - firms operate more efficiently as a result of a "threat" of takeover


Key Question of Ethical Behavior and CSR

Should strategic decision makers be responsible only to shareholders or do they have broader responsibilities?


CSR: Friedman vs. Carroll

- Friedman = traditional view (only responsibility is profits)
- Carroll's Four Responsibilities
1. Economic (must do)
2. Legal (have to do)
3. Ethical (should do)
4. Discretionary (might do)


Three Approaches to Ethical Behavior

1. Utilitarian - actions and plans judged by consequences
2. Individual Rights - people have a fundamental right to be respected in all decisions
3. Justice - distribution of costs and benefits to be equitable, fair and impartial


Corporate Governance and Ethical Behavior: Stakeholders

- it's important to serve the interests of the firm's multiple stakeholder groups
- organizations have dependency relationships with stakeholders but not equally dependent on all
1. Capital Market Stakeholders - shareholders
2. Product Market Stakeholders - customers, suppliers, etc.
3. Organizational Stakeholders - employees, management


Environmental Analysis

- everything that happens outside the firm, not just industry (country, city, legal environment, etc.)
1. Scanning - identifying early signals of environment changes/trends
2. Monitoring - detecting meaning through ongoing observation of changes/trends
3. Forecasting ** - first and foremost, developing projections of anticipated outcomes given change/trends
4. Assessing - determining the timing/importance of changes/trends for firms' strategies
Also, Competitor Intelligence - spending time to get to know your competitors (e.g. go buy their product)


Macro Level Forces (Environmental Analysis) - 6

Outer Circle
Should consider and look for trends in the following:
1. demographic
2. economic
3. sociocultural (e.g. women in the workforce)
4. political/legal
5. technological
6. global


Industry Level Forces (Environmental Analysis) - 5

Circle within outer circle of Macro level
1. Threat of new entrants
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of substitution
5. Rivalry among competing firms


Industry-Level Forces - Threat of New Entrants

- seriousness depends on:
1. barriers to entry - exist when newcomers confront obstacles, economic factors out entrant at disadvantage
2. reaction of existing firms

- common barriers: economies of scale, access to distribution channels, strong brand preferences/loyalty, learning curve

- threat stronger when: barriers are low, sizable pool of entry candidates exist, newcomer expects high profits, no incumbents fighting it


Industry-Level Forces - Threat of Substitute Products

- matter when customers are attracted to products of firms in other industries (e.g. contacts vs. glasses)

- threat stronger when: readily available, attractively priced, switching costs low


Concentration Ratio (CR4)

- based on top 4 firms in the industry
- closer to 1 = concentrated
- closer to 0 = fragmented

- greater concentration can lead to greater market power (in terms of the power of buyers/suppliers)


Industry-Level Forces - Power of Suppliers

- stronger the force, the more suppliers can exercise power over prices, quality/performance, amounts/delivery times

- industry-to-industry comparison

- high when: item is large portion of the product's cost, costly for industry to switch, suppliers have good reputation, cheaper than industry can make


Industry-Level Forces - Power of Buyers

- stronger the force, the more suppliers can exercise power over prices, quality/performance, amounts/delivery times

- industry-to-industry comparison

- buyers are not always the end consumer (retail stores, etc.)

- higher when: buyers are large and purchase sizable percentage of industry's product, when buyers can integrate, product is standardized, switching cost low, product purchased does not save money


Industry-Level Forces - Rivalry Among Competitors

- check which weapon of competitive rivalry are more actively used by rivals: price, quality, performance, customer service, innovation, etc.

- rivalry is more intense when: lots of firms compete, slow market growth, low switching costs, costs more to get out than in


Competitive Environment - Attractive vs. Unattractive

Attractive: rivalry is weak, threat of new entrants low (barriers high), subs don't exist or are weak, suppliers/buyers have weak bargaining power (e.g. pharma)

Unattractive: rivalry is strong, threat of new entrants high(barriers low), subs are strong, suppliers/buyers have considerable bargaining power (e.g. automobile, airline, soft drinks)


Assessing Industry Attractiveness

- will competitive forces become weaker/stronger?
- market size and growth potential
- potential for entry/exit of major firms
- stability/dependability of demand
- severity of problems facing industry
- degree of uncertainty in future


Industry Evolution - Four Trajectories (reading)

1. Radical - both core activities and core assets are threatened with obsolescence (everything is up in the air)
2. Progressive - everyone has incentive to preserve the status quo
3. Creative - relationships with customers/suppliers are stable, assets turn over constantly
4. Intermediating - buyers and suppliers have new options but core assets are retained if they're used in new ways


Internal Analysis - Resource-Based Approach

1. Identify and classify firm's resources (strengths and weaknesses)
2. Combine firm's strengths into capabilities (core competencies and distinctive competencies)
3. Profit potential of resources (sustainable competitive advantage
4. Select strategy (exploit resources relative to external opportunities
5. Identify resource gaps (invest in upgrading weaknesses)


Resource Sustainability Scale

High = slow-cycle resources (hard to imitate)
Middle = standard-cycle resources
Low = fast-cycle resources (easy to imitate)


Internal Analysis - Capabilities

- firm's ability to integrate firm resources to achieve desired objective
- capabilities develop over time (complex interactions, interrelationship between tangible/intangible assets - hard to imitate)
- unique combinations of capabilities create core competencies


Internal Analysis - Core Competencies (4 Criteria)

1. Valuable - create value for the customer
2. Rare - possessed by few
3. Costly to Imitate - other firms can not develop easily
4. Non-Substitutable - do not have strategic equivalents

VRIO framework (perfect example: natural resources)

Never take for granted that core competencies will continue to be a source of competitive advantage and also have risk of becoming core rigidities

- strategic myopia can strangle the firm's ability to grow



Strengths, Weaknesses - use value chain analysis

Opportunities, Threats - use industry analysis

- not very robust overall


Value Chain Analysis - Primary Activities

Rate each of the following as weak, strong, or fair

Primary Activities
- Inbound Logistics - getting raw materials to the right place, right time (HR or physical)
- Operations - creating the final good
- Outbound Logistics - getting the final good to the customer
- Marketing and Sales - sell something you've already made
- Service - customer feedback, warrantee, etc.


Value Chain Analysis - Support Activities

Rate each of the following as weak, strong, or fair

Support Activities (permeate all the primary activities)
- Infrastructure - physical and financial and top management
- HR - hiring, training, retaining talent
- Technology Development - R&D
- Procurement - purchasing, raw materials, etc.



- firms often purchase a portion of their value creating activities from specialty external suppliers who can perform these functions more efficiently

- rationales for outsourcing
1. improve business focus
2. access to better capabilities
3. share risks
4. frees resources for other purposes


Total Value System

Value Chains are part of a total value system

Supplier Value Chain + Firm Value Chain + Channel Value Chain + Buyer Value Chain


The Diversified Corporation as a Tree (reading)

the trunk and major limbs = core products

smaller branches = business units

leaves, fruit, flowers = end product

root system that provides nourishment, sustenance, sustainability = core competence

*Miss the strength of a firm if you are only looking at its end products


Business Strategy and Competitive Advantage

- essence of strategy is achieving sustainable competitive advantage
- built around firm's internal strengths
- sustainable competitive advantage can be achieved by:
1. creating tomorrow's competitive advantage faster than competitors
2. having inimitable resources or positions


Core Competency > Strategy > Business Level Strategy

Resources/Capabilities that have been determined to be a source of competitive advantage > Integrated and coordinated set of actions taken to exploit core competencies and gain comp. adv > actions to provide value to customers and gain a competitive adv. by exploiting core competencies in specific, individual product markets


Three Generic Business Strategies

1. Differentiation - unique and superior value
2. Cost Leadership - design product more efficiently, low price
3. Focus (value and low cost) - narrow product lines, buyer segments


Basis of Competition (3)

1. Quality (e.g. performance, service, image, etc.)
2. Cost
3. Focus (i.e. understanding your customers)


Business Strategy: Cost Leadership

- integrated tactics (e.g. tight costs/overhead, sticking with big customers, cost minimization in value chain activities
- a firm following cost leadership must attain parity on the basis of differentiation relative to rivals (can't be seen as inferior)


Advantages/Disadvantages of Cost Leadership

- protects firms against rivals, powerful buyers
- provides barriers to entry
- favorable in terms of being an attractive substitute

- too much focus on one or a few value-chain activities
- easily imitated
- rivals share common input/raw materials


Business Strategy: Differentiation

- can take many forms (e.g. prestige, brand image, features, customer service, etc.)
- firms may differentiate along several dimensions at once
- price premiums need to exceed cost of being unique
- important aspect: speed/quick response


Advantages/Disadvantages of Differentiation

- high barrier to entry (customer loyalty)
- reduces buyer/supplier power due to lack of alternatives and prestige association
- less threat of substitutes (customer loyalty)

- uniqueness not that valuable (e.g. the Newton)
- too much differentiation at a price premium
- easily imitated
- dilution of brand through product-line extensions (e.g. North Face)


Advantages/Disadvantages of Focus Strategy

- creates barriers of either cost leadership or differentiation or both
- used to select niches that are least vulnerable to substitutes or where competitors are weakest

- erosion of cost advantages with narrow segment
- focus products still subject to competition
- can become too focused to satisfy buyer needs


Business Strategy: Combination Strategies

- integrating low cost and differentiation
- primary benefit: difficult to imitate
- goal: provide unique value in an efficient manner
- threat of ending up "in the middle" = the worst place to be


Three Examples of Combination Strategies

1. Automated and flexible manufacturing systems
2. exploiting the profit pool concept for competitive advantage
3. coordinating the "extended" value chain by way of information technology


Advantages/Disadvantages Combination Strategies

- high entry to barrier
- bargaining power over suppliers
- reduces power of buyers (fewer competitors)
- reduced head-to-head rivalry

- firms may become "stuck in the middle"
- underestimating the challenges/expenses re: coordinating value-creating activities
- miscalculating sources of revenue and profit pools in the firm's industry


Industry Life Cycle (4)

1. Introduction - differentiation, low growth, few segments, low competition (major concern: R&D)
2. Growth - differentiation, large growth, some segments, increasing competition (major concern: Sales & marketing)
3. Maturity - diff/cost leadership, low/moderate growth, many segments, intense competition (major concern: Production)
4. Decline - cost leadership/focus, negative growth, few segments, changing competition (major concern: general management and finances)
- emphasis on strategies, functional areas, value-creating activities, overall objectives varies over the course of the cycle


Strategies at Stages of the Life Cycle (4)

1. Introduction = develop product and get people to use it
2. Growth = brand recognition, differentiate products
3. Maturity = low costs, efficient manufacturing and ops
4. Decline = maintaining, exiting, consolidation, harvesting


New Points of Differentiation (reading)

- a firm has an opportunity to differentiate themselves at every point where it comes into contact with the consumer
- mapping the consumption chain
- when do people become aware of need for product? how do consumers find it? how is it delivered? how is it disposed of? etc...


Building Strategy on the Experience Curve (reading)

- successful use of the curve requires understanding why and how it works


Corporate Strategy

- where to compete
1. Selecting Industries - specific mix
2. Providing Direction - decisions that help coordinate activities
3. Allocating Resources


Corporate Directional Strategies (3)

1. Growth - concentration (vertical/horizontal growth) and diversification (at a certain point, reach P max and then adding expenses without profit)
2. Stability - no change, profit
3. Retrenchment (Divestment) - turnaround, sell-out, bankruptcy/liquidation



Diversify or not?
1. Industry attractiveness test
2. Cost of entry test
3. better-off test (1 + 1 = 3?)

Means of Diversification:
1. Internal Development (create a business, slow)
2. Mergers, Acquisitions, Takeovers (buy a business, straightforward)
3. Joint Ventures (partner in a business and create a third legal entity - investments don't have to be equal, most complicated)


Diversification Options (3)

1. Diversify into a related business (synergy - transfer skills and resources)
2. Diversify into an unrelated business (spreading risk - undervalues assets and turn them around)
3. Diversity into both


Combination Related-Unrelated Diversification Strategies

- Can be a little related or a lot related
1. Dominant-business firms (one major business 50-80% of revenues)
2. Narrowly diversified firms (diversification includes 2-5 related or unrelated businesses
3. Broadly diversified firms (diversification includes wide collection of related/unrelated firms)
4. Multi-business firms (portfolio includes several unrelated groups of related businesses)


Two Mechanisms to Add Value by Diversification

1. Developing economies of scope between units in the firm (leads to synergistic benefits)
2. Developing market power (leads to greater returns)


Vertical Integration

- backward (becoming your own supplier)
- forward (becoming your own buyer or distributor)

- unbalanced capacity (if you have too much to sell, cost comes back)
- investing in obsolete technologies


Related Diversification Strategy

- sharing activities (lowers cost and raises differentiation)
- transferring core competencies (exploiting interrelationships)
- find potential for overlap in value chain
- strategic fit exists when one or more activities in the value chains of different businesses are sufficiently similar to present opportunities for transferring, exploiting, combining


Unrelated Diversification Strategy

- efficient internal capital market allocation (reduce risk by allocating resources among BUs, avoid disclosing financial information by using internal market)
- restructuring (seek out undervalued firms, attempt to change strategy, top management, use different technology)


Managerial Incentives to Diversify (4)

1. poor performance leads to diversification to achieve better returns
2. balance uncertain future cash flows
3. reduce risk
4. managers have incentives to diversify in order to increase compensation and reduce employment risk


Corporate Portfolio Analysis

- how much time/money should we spend on best products so they continue to be successful vs. our costly products which will never be successful?
1. BCG Matrix = business growth rate vs. relative competitive position
- stars (fast/high mkt share), question marks (fast/low mkt share), cash cows (slow/high mkt share), dogs (slow, low mkt share)
2. GE Business Screen = long term industry attractiveness (5 forces) vs. business strength/competitive position (value chain)
- winners vs. losers


Strategic Fit

1. Determine competitive advantage potential of value chain relationships among current businesses
2. Determine how well firm's resources match current businesses


Core Capabilities (reading)

- question shouldn't be "what business are we in?" but "what capabilities do we need to develop and nurture to take advantage of changing conditions?"
- Core Capabilities = Core Competencies (special skills that distinguish your firm) + Strategic Process (business process you use to deliver your special know-how in the form of goods/services)


International Strategy

- understanding and select marketplaces to compete in
- select foreign entry strategy
- international strategies & competitive advantage


Strategies for Entering Foreign Markets (5)

From lower risk & control --> more risk and control

1. Exporting (shipping overseas)
2. Licensing (likeness/use of name with specific terms, duration, etc.)
3. Franchising (more control, more local knowledge, more risk)
4. Joint Ventures (formation of a 3rd legal entity)
5. Wholly Owned Subsidiary (difficult to hire local people, all the risk but all the control)


Motivations for International Expansion (4)

1. Increase Market Share
2. Return on Investment (large investment may require global markets to justify capital outlays)
3. Economies of Learning or Scale - increase profit per unit
4. Location Advantages (better access to: raw materials, lower labor cost, energy, key customers)


Country Differences (4)

1. Market Differences (buyer preferences, distro channels)
2. Cost Differences (exchange rates, wages, etc.)
3. Resource Differences (energy, supply availability)
4. Host Country Trade Policies (taxes, tariffs, etc.)


Porters Diamond (Determinants of National Advantage)

1. Factors of Production (inputs necessary to compete in any industry - labor, land, capital, infrastructure)
2. Demand Conditions (characterized by nature/size buyers needs)
3. Related and Supporting Industries (suppliers, distro, etc.)
4. Firm Strategy, Structure, Rivalry


International Corporate Level Strategies (3)

1. Multi-Domestic - products/services tailored to local markets, strategy/ops decisions decentralized, markets differ by country/region
2. Global - products/services the same among all mkts, strategy/ops centralized, focus on economies of scale
3. Transnational - seeks to achieve both global efficiency and local responsiveness, difficult to achieve


International Diversification: Returns & Innovation

- firm expands the sales of its good/services across borders
- may result in increased returns and innovation
- exposed to economies of scale and new products


Risks in International Environment

1. Political Risks - instability in national gov't, war, nationalization of firm's resources
3. Economic Risks - fluctuations in value of currency, wage rates, property rights


What is a Global Manager? (reading)

No such thing...need all the following:
1. Business Manager (strategist + architect + coordinator)
2. Country Manager (sensor + builder + contributor)
3. Functional Manager (scanner + cross-pollinator + champion)
4. Corporate Manager (leader + talent scout + developer)


Strategy Formulation vs. Strategy Implementation

- formulation is concerned with having the right plan and achieving a fit between a firm's strategy and its environment
- implementation is concerned with carrying out the plan well and achieving a fit between a firm's strategy and its structure, people, culture and capabilities


Strategy Implementation

- sum total of the activities and choices required for the execution of a strategic plan
- process by which strategies and policies are put into action through programs, budgets and procedures


Frequently Encountered Problems with Strategy Implementation (5)

1. slower than originally planned
2. unanticipated major problems arise
3. ineffective coordination of activities
4. competing activities and crises that distract attention away from implementation
5. insufficient capabilities of involved employees

overall, people resist change


Structure of Strategy Implementation

- how we organize people to get things done (assignment of tasks and responsibilities)
- provides basis for coordination and integration of individuals and groups within the organization
- Adam Smith (pin making) - division of labor


Structure of Strategy Implementation: Complexity, Control and Formalization

Complexity - creation of distinct tasks and responsibilities. Types of complexity: degree of specialization, levels of hierarchy, geographic dispersion

Control - design of a hierarchy to supervise various differentiated elements of the org (e.g. Casino movie)
- extent to which authority for decision making is held at higher levels of the org (centralization vs. decentralization)

Formalization - extent to which roles and procedure govern the actions of the individuals/groups in the org
- balancing act - can't be too low (uncertainty), can't be too high (limit innovation)


Purpose of Structure

1. Coordination - create activities toward a productive goal while still operating separately (don't want design dept designing something builders can't build)
- mechanisms include: procedures, hierarchical referral, liaison personnel

2. Integration - come together and create something new by combining knowledge and operating as a unit
- mechanisms: teams and task forces


Types of Structures (4)

in order from need to focus on task efficiency to need to focus on purpose:
1. Functional Structure
2. Matrix Structure
3. Divisional Structure
4. Multi-divisional Structure


Functional Structure

- grouping by function (i.e. group like-minded people together)
- division of labor

- advantages: centralized decision making, pooling of specialists, career paths and professional development
- disadvantages: identifying with the group vs. the company at large, impede communications, difficult to establish uniform performance standards


Matrix Structure

- both people and resources are in two groups simultaneously (function and product)
- grid structure: vertical flow of functional responsibility and horizontal flow of product responsibility
- "two boss" structure

- advantages: increase learning, maximize use of skilled professionals, promote concern for both cost and quality
- disadvantages: dual reporting leads to accountability issues, working relationships become complicated, slow decision making


Divisional Structure

- primary grouping by purpose; secondary grouping by function


Multi-Divisional Structure

- focus on:
1. Products
2. Markets
3. Regions
- are grouped together into separate divisions according to similarities/differences

- advantages: resource sharing can be planned, quick response to environmental problems, internal labor market
- disadvantages: double the number of managers so high cost, difficult maintaining uniform image, overemphasis on short-term, coordination


Variations of Multi-Divisional Structure (3)

1. Cooperative Form - large corporate office with R and D centralized, emphasis on sharing, lots of divisions that can share resources
2. Strategic Business Unit (SBU) Structure - clusters of business units that can share resources, HQ is a consultant to SBUs and divisions
3. Competitive Form - HQ has a small staff, divisions are independent and separate for financial evaluation


Network Structure

- "non-structure" - elimination of in-house business functions
- "virtual organization"
- useful in unstable environments and where there's a need for innovation and quick response
- corporate HQ brokers deals but only has a handful of employees



- radical design of business processes to achieve major gains in cost, service or time
- organize around outcomes, not tasks
- have those who output perform the process
- subsume information-processing work into the real work (e.g. forms filled out that are never used)
- link parallel activities instead of integrating their results


Structure + Business Strategy and Corporate Strategy

Business - does the structure fit with the basic generic strategy and allow for development of specific functional advantages?

Corporate - does the structure permit the appropriate grouping of activities and allow for appropriate centralization/decentralization?


Structure Follows Strategy

1. new strategy is created
2. new administrative problems emerge
3. new structure is invented to aid the strategy
4. new internal systems developed

Strategy alone is not enough! Internal budget and support mechanisms must be put in place


Hierarchies (reading)

- hierarchies are outdated (e.g. everyone jumping at the whim of the boss) and too slow for the modern world but they are here to stay and we should make the best of them
- they remain because people like feelings of power and rewards and security


A Well-Designed Organization (9 Tests of Design - reading)

1. Getting the Right Fit - exploit competitive advantage
2. Parenting Advantage Test - does the design help corporate parent add value?
3. The People Test - strengths/weaknesses of people reflected in the design?
4. Feasibility Test - take into account constraints
5. Specialist Cultures Test - does design protect units with a distinct culture?
6. Difficult-links test - coordination solutions exist?
7. Redundant-hierarchy test - too many parent levels?
8. Accountability test - does design support effective controls?
9. Flexibility Test - does design facilitate the development of new strategies and provide flexibility for change?



- leadership is the process of transforming organizations from what they are to what the leader would have them become
- leadership should be proactive, goal-oriented, focused on creation and implementation of a creative vision
- Three Interdependent Activities:
1. Determining a Direction
2. Designing the organization
3. Nurturing a culture dedicated to excellence and ethical behavior (needs to fit with everything else)


Leadership: Setting a Direction

- strategy formulation
- scan environment to have knowledge of stakeholders plus environment/trends
- integrate knowledge into vision


Leadership: Designing the Organization

- structure that matches the vision
- difficulties include:
lack of understanding/accountability among managers, reward systems that don't motivate, inadequate budgeting/control, insufficient coordination among activities


Leadership: Nurturing a Culture

- managers must accept personal responsibility for developing and strengthening ethical behavior
- detecting culture can take time (don't really know until you've been there)
- managers must develop and reinforce role models, corporate credo, policies and procedures, etc.


Overcoming Barriers to Change and the Effective Use of Power

- it's difficult for managers to make changes because of behavioral barriers, systematic barriers, political barriers, personal time constraints

- leader must use bases of power - personal, referent, expert



- beliefs about how business ought to be conducted
- values and principles of management
- oft-told stories illustrating company values
- taboos and political don'ts
- traditions
- ethical standards


Organizational Culture and Shared Values

- Definition: complex set of values, beliefs and assumptions resulting from a combination of organizational factors over a period of time

- Sources: founder/early leader, influential individual/group, policies, vision, strategy, traditions, relationships with stakeholders, etc.

- Characteristics: visible behaviors, focus of attention, responses to incidents, criteria for rewards, criteria for recruitment

- Mechanisms: selection of new employees, rewarding employees who follow, story telling, senior employees reinforcement



- hiring people with new skills, firing people with inappropriate skills and/or training existing employees to learn new skills

Staffing follows Strategy
- training and development (firms with training programs, 19% higher productivity)
- reduction in scrap
- overall cost savings
- matching manager to strategy


Top Management Teams

- key managers who are responsible for formulating and implementing the organization's strategies

Heterogeneous - top mgmt team with different backgrounds and expertise

Homogeneous - top mgmt. team with similar backgrounds and expertise


Labor Market (external vs. internal)

Internal = selecting internal candidates for management positions (builds on valuable firm-specific knowledge)

External = managers outside the firm (fresh perspectives_


Top Management Team Composition (Heterogen/Homogen) vs. Managerial Labor Market (Internal/External)

Homogeneous/Internal = Stable Strategy

Homogeneous/External = Ambiguous (possible change in top management and firm strategy)

Heterogeneous/Internal = Stable Strategy with Innovation

Heterogeneous/External = Strategic Change (easy to "unfreeze" the organization)


Managing the Culture of an Acquired Firm

Perception of Attractiveness of the Acquirer vs. How members of the Acquired firm value preservation of their own culture

Very Attractive/Very Much = Integration

Not Attractive/Very Much = Separation

Very Attractive/Not Much = Assimilation

Not Attractive/Not Much = Deculturalization


Innovation and Types

- innovation is using new knowledge to transform organizational processes or create commercially viable products and services
- renewal comes from new ideas

1. Radical (fundamental changes and breakthroughs) vs. Incremental (enhance existing products) - there exists a continuum between these two extremes
2. Product (efforts to create product designs - differentiation) vs. Process (improving efficiency of an organizational process - cost leadership)


Challenges of Innovation (5)

1. Seeds vs. Weeds - deciding the merits of innovative ideas in relation to the investment required
2. Experience vs. Initiative - deciding who will lead an innovative project (senior managers vs. midlevel employees)
3. Internal vs. External - teams to take on innovation projects (people from inside the firm or outside)
4. Building Capabilities vs. Collaborating - innovation requires building new sets of skills (firms can seek help or partnerships)
5. Incremental vs. Preemptive Launch - firms must manage timing and scale of new projects (incremental or large-scale launch)


Scope and Pace of Innovation

Scope = firms must define the "strategic envelope" - balance among how much innovation will cost, how viable. Overall, will it be worth it?

Pace = firms needs to regulate the pace of innovation - incremental (6 mos to 1 yr) vs. radical (10 years or more)


Corporate Entrepreneurship

- determining how innovation will get into the mainstream
- has to do with corporate culture, leadership, structural features, organizational systems

Autonomous Corp. Venturing work groups
1. New Venture Groups (NVG) - spin-off groups, little structure, identify/evaluate/cultivate venture opportunities
2. Business Incubators - designed to "hatch" new businesses


Dispersed Approaches to Corporate Entrepreneurship

- dedication to principles and practices of entrepreneurship is spread throughout the firm

Two Related Aspects:
1. Entrepreneurial Culture - search for venture opportunities permeates every part of the org
2. Product Champions - bring entrepreneurial efforts forward and identify the market that exists for them


Measuring Success of Corporate Entrepreneurship Activities

- comparing strategic and financial goals
- sometimes use real options analysis
- agency problem - sometimes managers "backsolve"


5-Point Scale of Entrepreneurial Orientation

1. Autonomy - independent action by an individual/team aimed at bringing forth business concept and seeing it through (promoted via skunkworks and design of firms that support it)
2. Innovativeness - enhanced via fostering creativity and experimentation, investing in new technology and R and D
3. Proactiveness - promoted via corporate attitude
4. Competitive Aggressiveness - promote via markets with lower prices, copying successful competitors
5. Risk Taking - business, personal, financial


Categories of Entrepreneurial Ventures

- distinguished via size, age, growth goals

1. Elephants - large older companies that aren't nimble but when they stampeded, get out of the way, influence marketplace (e.g. IBM)
2. Mice - small nible firms (dry cleaners, restaurants, etc.), don't aspire to grow super big, want to maintain profitability
3. Gazelles - seek rapid growth above profitability, want to be the "hot" company


Opportunity Recognition (2 phases)

- opps from start-ups and established firms

1. Discovery Phase - become aware of a new business concept
2. Opportunity Formation Phase - can it become a full-fledged venture?


Characteristics of a Good Opportunity (4)

1. Attractive
2. Achievable
3. Durable
4. Value Creating


Opportunity Analysis Framework

1. Resources - money, human capital, social capital
2. Opportunity
3. Entrepreneurs - requires a special kind of leadership, three characteristics - vision (most important), dedication/drive, commitment to excellence