chapter 1 - strategic management

Question 1

two perspectives of leadership

Answer 1

the “romantic” and the “external control” perspectives.

Question 2

romantic view of leadership

Answer 2

romantic view of leadership. Here, the implicit assumption is that the leader is the key force in determining an organization’s success—or lack thereof.

This view dominates the popular press in business magazines such as Fortune, Bloomberg Businessweek, and Forbes, wherein the CEO is either lauded for their firm’s success or chided for the organization’s demise

EX: steve jobs and apple’s emergence as the most valuable firm in the world
“On the other hand, when things don’t go well, much of the failure of an organization can also, rightfully, be attributed to the leader

Question 3

external control view of leadership

Answer 3

the external control view of leadership.

Here, rather than making the implicit assumption that the leader is the most important factor in determining organizational outcomes, the focus is on external factors that may positively (or negatively) affect a firm’s success.

We don’t have to look far to support this perspective. Developments in the general environment, such as economic downturns, new technologies, governmental legislation, or an outbreak of major internal conflict or war, can greatly restrict the choices available to a firm’s executives

Question 4

strategic management

Answer 4

Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. This definition captures two main elements that go to the heart of the field of strategic management.

Question 5

steps of strategic management

Answer 5

First, the strategic management of an organization entails three ongoing processes: analyses, decisions, and actions. Strategic management is concerned with the analysis of strategic goals (vision, mission, and strategic objectives) along with the analysis of the internal and external environments of the organization.

Next, leaders must make strategic decisions. These decisions, broadly speaking, address two basic questions: What industries should we compete in? How should we compete in those industries? These questions also often involve an organization’s domestic and international operations.

And last are the actions that must be taken. Decisions are of little use, of course, unless they are acted on.

Firms must take the necessary actions to implement their strategies. This requires leaders to allocate the necessary resources and to design the organization to bring the intended strategies to reality.

1. analyses, decisions and actions
2. decisions
3. actions
4. strategies

Question 6

essence of strategic management

Answer 6

The essence of strategic management is the study of why some firms outperform others. Thus, managers need to determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time. That means focusing on two fundamental questions:

1. How should we compete in order to create competitive advantages in the marketplace?
   - Managers need to determine if the firm should position itself as the low-cost producer or develop products and services that are unique and will enable the firm to charge premium prices. Or should they do some combination of both?
2. How can we create competitive advantages in the marketplace that are unique, valuable, and difficult for rivals to copy or substitute?
   - That is, managers need to make such advantages sustainable rather than temporary.”

Question 7

operational effectiveness

Answer 7

The popular management innovations of the last two decades—total quality, just-in-time, benchmarking, business process reengineering, outsourcing—are all about operational effectiveness.

Operational effectiveness means performing similar activities better than rivals. Each of these innovations is important, but none lead to sustainable competitive advantage because everyone is doing them

Question 8

strategy

Answer 8

“Strategy is all about being different. Sustainable competitive advantage is possible only by performing different activities from rivals or performing similar activities in different ways.”

Question 9

the four key attributes of strategic management

Answer 9

1. Directs the organization toward overall goals and objectives
2. Includes multiple stakeholders in decision making
3. Incorporates short-term and long-term perspectives
4. Recognizes trade-offs between efficiency and effectiveness

Question 10

the four key attributes of strategic management - 1. Directs the organization toward overall goals and objectives

Answer 10

“First, strategic management is directed toward overall organizational goals and objectives. That is, effort must be directed at what is best for the total organization, not just a single functional area. Some authors have referred to this perspective as “organizational versus individual rationality.”

That is, what might look “rational” or ideal for one functional area, such as operations, may not be in the best interest of the overall firm.”

“For example, operations may decide to schedule long production runs of similar products to lower unit costs. However, the standardized output may be counter to what the marketing department needs to appeal to a demanding target market

Question 11

the four key attributes of strategic management - 2. Includes multiple stakeholders in decision making

Answer 11

Second, strategic management includes multiple stakeholders in decision making.

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. (We’ll discuss this in more detail later in this chapter.) Managers will not be successful if they focus on a single stakeholder.

For example, if the overwhelming emphasis is on generating profits for the owners, employees may become alienated,”

Question 12

the four key attributes of strategic management - 3. Incorporates short-term and long-term perspectives

Answer 12

Third, strategic management requires incorporating both short-term and long-term perspectives.

Peter Senge, a leading strategic management author, has referred to this need as a “creative tension.” That is, managers must maintain both a vision for the future of the organization and a focus on its present operating needs. However, financial markets can exert significant pressures on executives to meet short-term performance targets.

Studies have shown that corporate leaders often take a short-term approach to the detriment of creating long-term shareholder value.”

Question 13

the four key attributes of strategic management - 4. Recognizes trade-offs between efficiency and effectiveness

Answer 13

Fourth, strategic management involves the recognition of trade-offs between effectiveness and efficiency.

Some authors have referred to this as the difference between “doing the right thing” (effectiveness) and “doing things right” (efficiency).

While managers must allocate and use resources wisely, they must still direct their efforts toward the attainment of overall organizational objectives.

As noted by Meg Whitman, Hewlett-Packard’s former CEO, “Less than perfect strategy execution against the right strategy will probably work. A 100 percent execution against the wrong strategy won’t

Question 14

digital technologies

Answer 14

Digital technologies can also impact the trade-offs between effectiveness and efficiency. When companies use digital technologies to digitize existing business processes, efficiency is improved.

For example, artificial intelligence may be used to automate repetitive administrative tasks such as data entry. In contrast, when companies use digital technologies to become more digital, they often deliver new digital offerings

Question 15

Three questions that many leaders view as “either/or” choices - 1. Do we manage for today or for tomorrow?

Innovation paradox!!!!

Answer 15

“Do we manage for today or for tomorrow? A firm’s long-term survival requires taking risks and learning from failure in the pursuit of new products and services. However, companies also need consistency in their products and services. This depicts the tension between existing products and new ones, stability and change. This is the innovation paradox.

For example, in the late 1990s, IBM’s senior leaders saw the internet wave and felt the need to harness the new technology. However, the firm also needed to sustain its traditional strength in client-server markets.

Question 16

Three questions that many leaders view as “either/or” choices - 2. Do we stick to boundaries or cross them?

Globalization paradox!!!

Answer 16

Do we stick to boundaries or cross them? Global supply chains can be very effective, but they may also lack flexibility. New ideas can emerge from innovation activities that are dispersed throughout the world. However, not having all the talent and brains in one location can be costly. This is the tension between global connectedness and local needs, the globalization paradox.”

Question 17

Three questions that many leaders view as “either/or” choices - 3. Whom do we focus on, shareholders or stakeholders?

Obligation paradox

Answer 17

Whom do we focus on, shareholders or stakeholders? Clearly, companies exist to create value. But managers are often faced with the choice between maximizing shareholder gains while trying to create benefits for a wide range of stakeholders—employees, customers, society, and so on. However, being socially responsible may bring down a firm’s share price, and prioritizing employees may conflict with short-term shareholders’ or customers’ needs. This is the obligation paradox.

Paul Polman, Unilever’s former CEO, launched the Unilever Sustainable Living Plan in 2010. The goal was to double the size of the business over 10 years, improve the health and well-being of more than a billion people, and cut the firm’s environmental impact in half

Question 18

The 3 paradoxes of leader’s either/or choices

Answer 18

1. Innovation paradox
   This depicts the tension between existing products and new ones, stability and change
2. Obligation paradox
   However, being socially responsible may bring down a firm’s share price, and prioritizing employees may conflict with short-term shareholders’ or customers’ needs
3. Globalization paradox
   New ideas can emerge from innovation activities that are dispersed throughout the world. However, not having all the talent and brains in one location can be costly.

Question 19

ambidexterity

Answer 19

Some authors have developed the concept of ambidexterity (similar to the aforementioned innovation paradox), which refers to a manager’s challenge to both align resources to take advantage of existing product markets and proactively explore new opportunities

paradoxes possible:
innovation
obligation
globalization

Question 20

three ongoing processes _, _, _ that are central to strategic management. these three processes, referred to as _, _ and _ are highly interdependent and do not take place one after the other in sequential fashion/

Answer 20

We’ve identified three ongoing processes—[analyses, decisions, and actions]—that are central to strategic management.

In practice, these three processes—often referred to as [strategy analysis, strategy formulation, and strategy implementation]—are highly interdependent and do not take place one after the other in a sequential fashion in most companies.

Question 21

intended versus realized strategies

Answer 21

Henry Mintzberg, a management scholar at McGill University, argues that viewing the strategic management process as one in which analysis is followed by optimal decisions and their subsequent meticulous implementation neither describes the strategic management process accurately nor prescribes ideal practice.

He sees the business environment as far from predictable, thus limiting our ability for analysis

Taking into consideration the limitations discussed previously, Mintzberg proposed an alternative model.

[Constitute the intended strategy of the firm. For a variety of reasons, 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]

Question 22

realized strategy

Answer 22

the final realized strategy of any firm is a combination of deliberate and emergent strategies

Unforeseen environmental developments, unanticipated resource constraints, or changes in managerial preferences may result in at least some parts of the intended strategy remaining unrealized

Question 23

three key strategic management processes

Answer 23

1. strategy analysis
2. strategy formulation
3. strategy implementation

Question 24

three key strategic management processes - 1. strategy analysis

Answer 24

Strategy analysis may be looked upon as the starting point of the strategic management process. It consists of the “advance work” that must be done in order to effectively formulate and implement strategies. Many strategies fail because managers may want to formulate and implement strategies without a careful analysis of the overarching goals of the organization and without a thorough analysis of its external and internal environments

ch.1 (goals) - firm’s vision, mission, and strategic objectives form a hierarchy of goals that range from broad statements of intent and bases for competitive advantage to specific, measurable strategic objectives.

ch.2 (monitor) - Managers must monitor and scan the environment as well as analyze competitors. Two frameworks are provided:
(1) The general environment consists of several elements, such as demographic and economic segments, and
(2) the industry environment consists of competitors and other organizations that may threaten the success of a firm’s products and services.

ch.3 (strengths) - Analyzing the strengths and relationships among the activities that constitute a firm’s value chain (e.g., operations, marketing and sales, and human resource management) can be a means of uncovering potential sources of competitive advantage for the firm.

ch.4 (firm’s intellectual assets) - The knowledge worker and a firm’s other intellectual assets (e.g., patents) are important drivers of competitive advantages and wealth creation. We also assess how well the organization creates networks and relationships as well as how technology can enhance collaboration among employees and provide a means of accumulating and storing knowledge

Question 25

three key strategic management processes - 2. strategy formulation

Answer 25

Strategy formulation is developed at several levels.

First, business-level strategy addresses the issue of how to compete in a given business to attain competitive advantage.
Second, corporate-level strategy focuses on two issues:
(a) what businesses to compete in and
(b) how businesses can be managed to achieve synergy; that is, they create more value by working together than by operating as standalone businesses. Third, a firm must develop international strategies as it ventures beyond its national boundaries. Fourth, managers must formulate effective entrepreneurial initiatives

1. formulating business-level strategy
2. formulating corproate-level strategy
3. formulating international strategy
4. entrepreneurial strategy and competitive dynamics

Question 26

three key strategic management processes - 3. strategy implementation

Answer 26

Clearly, sound strategies are of no value if they are not properly implemented.

Strategy implementation involves ensuring proper strategic controls and organizational designs, which includes establishing effective means to coordinate and integrate activities within the firm as well as with its suppliers, customers, and alliance partners

1. strategic control and corporate governance
2. creating effective organizational designs
3. creating a learning organization and ethical organization
4. fostering corporate entreprenuership

Question 27

three key strategic management processes -

1. strategy analysis (STEPS)

Answer 27

Analyzing Organizational Goals and Objectives (Chapter 1) A firm’s vision, mission, and strategic objectives form a hierarchy of goals that range from broad statements of intent and bases for competitive advantage to specific, measurable strategic objectives.

Analyzing the External Environment of the Firm (Chapter 2) Managers must monitor and scan the environment as well as analyze competitors. Two frameworks are provided:
–> (1) The general environment consists of several elements, such as demographic and economic segments, and
–> (2) the industry environment consists of competitors and other organizations that may threaten the success of a firm’s products and services.

Assessing the Internal Environment of the Firm (Chapter 3) Analyzing the strengths and relationships among the activities that constitute a firm’s value chain (e.g., operations, marketing and sales, and human resource management) can be a means of uncovering potential sources of competitive advantage for the firm.

Assessing a Firm’s Intellectual Assets (Chapter 4) The knowledge worker and a firm’s other intellectual assets (e.g., patents) are important drivers of competitive advantages and wealth creation. We also assess how well the organization creates networks and relationships as well as how technology can enhance collaboration among employees and provide a means of accumulating and storing knowledge

Question 28

three key strategic management processes -

2. strategy formulation (STEPS)

Answer 28

1. formulating business-level strategy: the question of how firms compete and outperform their rivals and how they achieve and sustain competitive advantages goes to the heart of strategic management. can be achieved through cost leadership, differentiation and narrow or industrywide market segment
2. formulating corporate-level strategy: corporate-level strategy addresses a firm’s portfolio (or group) of businesses. it asks: 1. what business should we compete in? and 2. how can we manage this portfolio of businesses to create synergies among the businesses>
3. formulating international strategy - when firms enter foreign markets they face both opportunities and pitfalls. must decide most appropriate entry strategy and how they will go about attaining competitive advantages in international markets.
4. entrepreneurial strategy and competitive dynamics - entrepreneurial activity aimed at new value creation is a major engine for economic growth.

Question 29

three key strategic management processes -

3. strategy implementation (STEPS)

Answer 29

1. strategic control and corporate governance - firms exercise two types of strategic control. 1st is informational control (scan environment for opportunities and threats). 2nd is behavioral control involves the proper balance of rewards and incentives as well as cultures and boundaries.
2. creating effective organizational designs - firms must have organizational structures and designs that are consistent with their strategy.
3. creating a learning organization and ethical organization - effective leaders set a direction, design the organization and develop an organization that is committed to excellence and ethical behavior. leaders must create a learning organization.
4. fostering corporate entrepreneurship - firms must continually improve and grow as well as find new ways to renew their organizations.

Question 30

corporate governance and primary participants

Answer 30

Robert Monks and Neil Minow provide a useful definition of corporate governance as “the relationship among various participants in determining the direction and performance of corporations.

The primary participants are:
(1) the shareholders,
(2) the management (led by the chief executive officer), and
(3) the board of directors.”

Question 31

the board of directors (BOD)

Answer 31

“The board of directors (BOD) are the elected representatives of the shareholders charged with ensuring that the interests and motives of management are aligned with those of the owners (i.e., shareholders). In many cases, the BOD is diligent in fulfilling its purpose.

For example, Intel Corporation, the global maker of microprocessor chips, practices sound governance.

Question 32

cronyism and BOD

Answer 32

Its BOD follows guidelines to ensure that its members are independent (i.e., are not members of the executive management team and do not have close personal ties to top executives) so that they can provide proper oversight; it has explicit guidelines on the selection of director candidates (to avoid “cronyism”)

Question 33

criticism of BODs of large corporations

Answer 33

Recently, there has been much criticism as well as cynicism by both citizens and the business press about the poor job the management and BODs of large corporations are doing.

Forty-five percent felt corporations have “too much influence over the government.”

More than half of the U.S. public said “strong and influential” corporations are “bad” even if they are promoting innovation and growth, and only 9 percent of the public in the United States says corporate CEOs are “among the most respected” in society.”

Question 34

three important mechanisms effective corporate governance

Answer 34

We focus on three important mechanisms to ensure effective corporate governance:
1. an effective and engaged board of directors,
2. shareholder activism,
3. and proper managerial rewards and incentives.

In addition to these internal controls, a key role is played by various external control mechanisms. These include the
1. auditors,
2. banks,
3. analysts,
4. an active financial press,
5. and the threat of hostile takeovers.

Question 35

zero sum (zero sum or symbiosis)

Answer 35

There are two opposing ways of looking at the role of stakeholder management.

The first one can be termed “zero sum.” Here, the various stakeholders compete for the organization’s resources: the gain of one individual or group is the loss of another individual or group.
—> EX: employees want higher wages (which drive down profits), suppliers want higher prices for their inputs and slower, more flexible delivery times (which drive up costs), customers want fast deliveries and higher quality (which drive up costs), the community at large wants charitable contributions (which take money from company goals), and so on. This zero-sum thinking is rooted, in part, in the traditional conflict between workers and management, leading to the formation of unions and sometimes ending in adversarial union–management negotiations and long, bitter strikes

Question 36

symbiosis (zero sum or symbiosis)

Answer 36

There will always be conflicting demands on organizations. However, organizations can achieve mutual benefit through stakeholder symbiosis, which recognizes that stakeholders are dependent upon each other for their success and well-being.

Consider Procter & Gamble’s “laundry detergent compaction,” a technique for compressing even more cleaning power into ever smaller concentrations.”
“P&G perfected a technique that could compact two or three times as much cleaning powder into a liquid concentration. This remarkable breakthrough has led to not only a change in consumer shopping habits but also a revolution in industry supply chain economics.

Question 37

Social Responsibility and Environmental Sustainability: Moving beyond the Immediate Stakeholders

Answer 37

Organizations cannot ignore the interests and demands of stakeholders such as citizens and society in general that are beyond its immediate constituencies—customers, owners, suppliers, and employees. “

“First, social responsibility recognizes that businesses must respond to society’s expectations regarding their obligations to society.

Second, the triple bottom line approach evaluates a firm’s performance. This perspective takes into account financial, social, and environmental performance.

Third, making the case for sustainability initiatives addresses some of the challenges managers face in obtaining approvals for such projects—and how to overcome them

Question 38

social responsibility

Answer 38

Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of society.60 From the perspective of a business, this means that managers must take active steps to make society better by virtue of the business being in existence”

Question 39

CSR activities divided across three theaters of practice and assigning the activities accordingly is an important initial step

Answer 39

Theater one: Focusing on philanthropy. Here, programs are not designed to increase profits or revenues. Examples include financial contributions to civic and charity organizations as well as the participation and engagement of employees in community programs.

Theater two: Improving operational effectiveness. Initiatives in this theater function within existing business models to provide social or environmental benefits and support a company’s value creating activities in order to enhance efficiency and effectiveness. They typically can increase revenue or decrease costs—or both.”

“Theater three: Transforming the business model. Improved business performance is a requirement of programs in this theater and is predicated on social and environmental challenges and results. An example would be Hindustan Unilever’s Project Shakti in India. Rather than use the typical wholesaler-retailer distribution model to reach remote villages, the firm recruited village women who were provided with training and microfinance loans in order to sell soaps, detergents, and other products door-to-door.

Question 40

CSR and poll results

Answer 40

Corporate Citizenship’s poll conducted by Cone Communications found that “84 percent of Americans say they would be likely to switch brands to one associated with a good cause, if price and quality are similar.”

Hill & Knowlton/Harris’s Interactive poll reveals that “79 percent of Americans take corporate citizenship into account when deciding whether to buy a particular company’s product and 37 percent consider corporate citizenship an important factor when making purchasing decisions.”

Question 41

critical need for three types of leaders in an organization

Answer 41

There is a critical need for three types of leaders:

1. Local line leaders who have significant profit-and-loss responsibility.
2. Executive leaders who champion and guide ideas, create a learning infrastructure, and establish a domain for taking action.
3. Internal networkers who, although they have little positional power and formal authority, generate their power through the conviction and clarity of their ideas”

Question 42

why share a firm’s strategic direction

Answer 42

Many have suggested the benefits that firms can obtain when they communicate their perspectives and priorities. Among these are:

1. Investor presentations of long-term plans……..provide an opportunity for discussions to take place regarding the continuing corporate performance on two critical elements: a long-term value creation story (drawing on the past) and a long-term value creation plan (looking to the future).
2. “Investors are increasingly seeing ESG (environmental, social, governance)……… issues as financially material and expect sound management of such factors in order to deliver better performance over the long term.

Question 43

hierarchy of goals (3)

Answer 43

Organizations express priorities best through stated goals and objectives that form a hierarchy of goals, which includes the firm’s vision, mission, and strategic objectives

top = general and long-time horizon
1. vision
2. mission statement
3. strategic objectives
bottom = specific and short time horizon

Question 44

hierarchy of goals - 1. organizational vision

Answer 44

A vision is a goal that is “massively inspiring, overarching, and long term.”

It represents a destination that is driven by and evokes passion. For example, Wendy Kopp, founder of Teach for America, notes that her vision for the organization, which strives to improve the quality of inner-city schools, draws many applicants: “We’re looking for people who are magnetized to this notion, this vision, that one day all children in our nation should have the opportunity to attain an excellent education”

Question 45

hierarchy of goals - 2. mission statement

Answer 45

A company’s mission statement differs from its vision in that it encompasses both the purpose of the company and the basis of competition and competitive advantage

Effective mission statements incorporate the concept of stakeholder management, suggesting that organizations must respond to multiple constituencies

Few mission statements identify profit or any other financial indicator as the sole purpose of the firm. Indeed, many do not even mention profit or shareholder return

VISION STATEMENTS - Vision statements tend to be quite enduring and seldom change. However, a firm’s mission can and should change when competitive conditions dramatically change or the firm is faced with new threats or opportunities

Question 46

why visions fail…

Answer 46

1. the walk doesn’t match the talk
2. irrelevance
3. not the holy grail
4. too much focus leaders to missed opportunities
5. an ideal future irreconclied with the present

Question 47

hierarchy of goals - 3. strategic objectives

and how can they be meaningful

Answer 47

Strategic objectives are used to operationalize a mission statement. That is, they help to provide guidance on how an organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision. Thus, they are more specific and cover a more well-defined time frame. Setting objectives demands a yardstick to measure the fulfillment of the objectives”

for objectives to be meaningful they must be (MSRT):
1. Measurable. There must be at least one indicator (or yardstick) that measures progress against fulfilling the objective.

2. Specific. This provides a clear message as to what needs to be accomplished.
   Appropriate. It must be consistent with the organization’s vision and mission.
3. Realistic. It must be an achievable target given the organization’s capabilities and opportunities in the environment. In essence, it must be challenging but doable.
4. Timely. There must be a time frame for achieving the objective. As the economist John Maynard Keynes once said, “In the long run, we are all dead!”

Question 48

beenfits of objectives

Answer 48

First, it helps channel all employees’ efforts toward common goals. This, in turn, helps the organization concentrate and conserve valuable resources and work collectively in a timely manner.”
“Second, challenging objectives can help motivate and inspire employees to higher levels of commitment and effort. “
“Third, as we noted earlier in the chapter, there is always the potential for different parts of an organization to pursue their own goals rather than overall company goals.”
“Finally, proper objectives provide a yardstick for rewards and incentives. They will ensure a greater sense of equity or fairness when rewards are allocated.

A caveat: When formulating strategic objectives, managers need to remember that too many objectives can result in a lack of focus and diminished results:”