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Strategic Management, Exam 1 > Strategic Management, Exam 1 > Flashcards

Strategic Management, Exam 1 Flashcards

1
Q

What is Strategic Management?

A

The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives

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2
Q

What is the purpose of Strategic Management?

A

To exploit and create new opportunities for tomorrow.

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3
Q

Name the 3 stages of the Strategic Management process.

A

Strategy formulation
Strategy implementation
Strategy evaluation

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4
Q

What does Strategic Formulation include?

A

Developing mission and vision statements
Identifying external opportunities and threats
Determining internal strengths and weaknesses
Establishing long-term objectives
Generating, evaluating, and selecting strategies

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5
Q

What does Strategic Evaluation include?

A

Measuring Performance
Evaluating Performance

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6
Q

What does Strategic Implementation include?

A

Primarily Management Issues but other issues include:
Marketing
Finance
Accounting
R&D
MIS

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7
Q

List the first four steps in the Strategic Management process.

A

(1) develop vision and mission statements
(2) perform external audit
(3) perform internal audit
(4) establish long term objectives

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8
Q

Name the three types of Strategic Objectives

A

Long term objectives
Annual objectives
Policies

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9
Q

Define ‘Competitive Advantage’

A

Anything a firm does well compared to other firms

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10
Q

How can a firm achieve sustainable competitive advantage?

A

Continually adapting to changes in external trends and events
Continually adapting to changes in internal capabilities and resources
Effectively formulating, implementing, and evaluating strategies that capitalize on those factors

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11
Q

List the two main types of benefits of Strategic Planning

A

Financial and Non-financial

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12
Q

List the benefits under the heading of ‘Financial Benefits’

A

Improved market share
Improved sales
Both of which lead to: Improved profits

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13
Q

List the benefits under the heading of ‘Non-financial Benefits’

A

Enhanced awareness of external environment
Increased productivity
Order and Discipline
Employee Empowerment: strengthening employees’ sense of effectiveness by encouraging them to participate in decision making and to exercise initiative and innovation.

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14
Q

What are the three questions a strategic plan should answer?

A

Where are we now?
Where do we want to go?
How are we going to get there?

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15
Q

Why are vision and mission statements important?

A

They ensure all managers / employees understand the firm’s purpose.
They provide a basis for strategy formulation prioritization.
They provide a basis for the allocation of resources.

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16
Q

What question does a vision statement answer?

A

What do we want to become?

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17
Q

What question does a mission statement answer?

A

What is our business?

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18
Q

Why do firms create mission and vision statements? [financial]

A

Profit alone is not enough to motivate employees
Employee salaries rarely change based on firm profits
Profits are often simply given away to shareholders
Mission and visions statements should be influenced by and accepted by employees

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19
Q

Why do firms create mission and vision statements? [communication]

A

Mission and vision statements provide a means of communication to internal and external stakeholders:
Customers
Employees
Managers
Creditors
Suppliers
Distributors

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20
Q

Name 5 characteristics of a Vision Statement

A

A vision statement should reveal the type of business the firm conducts.
Vision statements should be written from a customer perspective.
Ideally every organization wants its employees and customers to align their actions with the firm’s vision.
An excellent vision statement describes a desired future state.
The statement needs to be doable but challenging.

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21
Q

Name the four components of a vision statement

A

Concise, Clear, Future-oriented, and Ability to inspire
Fifth component: Unique [ref. 5-out-of-5 Test]

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22
Q

Three main characteristics of a Mission Statement

A

A mission statement is a declaration of a firm’s “reason for being”
A good mission statement should be broad (within reason). Broadness results in:
Creativity from management
Reconciliation between stakeholders
A good mission statement reflects the anticipations of the firm’s customers.

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23
Q

Name the nine mission statement components

A

Customers
Products or Services
Markets
Technology
Concern for survival, growth, and profitability
Philosophy
Self-concept
Concern for public image
Concern for employees

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24
Q

What are the five key external forces?

A

Economic
Social, Cultural, and Natural Environment
Political, Governmental, and Legal
Technological
Competitive

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25
Q

How does external assessment aid a firm?

A

External Assessment aids a firm in formulating strategies which:
take advantage of opportunities
reduce the impact of threats

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26
Q

What 2 characteristics should be considered when identifying and prioritizing key external factors?

A

The factors should be:
Specific (as quantified as possible)
Actionable (meaningful in terms of having strategic implications)

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27
Q

Name the 8 key economic variables

A

Levels of disposable income
Interest rates
Inflation rates
Gross Domestic Product (GDP)
Worker Productivity Levels
Stock Market Trends
Tax Rates
Import/Export Factors

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28
Q

Describe the relationship between strategy attractiveness and economic factors.

A

Economic factors have a direct impact on strategy attractiveness
For example:
When interest rates rise, disposable income falls. Thus, demand for non-essential goods also declines.
When stock prices rise, firms can more easily finance market development.

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29
Q

How does the value of the dollar impact companies?

A

The value of the dollar (or the currency in any country in which a firm is involved) has unequal effects of companies in different industries and in different locations.
For example:
The U.S. tourism industry does better when the dollar is weak, because more international travelers visit the country.
However, when the dollar is strong, U.S. agriculture does better because farmers can sell their products for to overseas buyers for more money.

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30
Q

List four advantages of a weak dollar

A

Leads to lower imports
Foreign countries lower interest rates
More travelers visit the U.S.
Firms are encouraged to globalize

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31
Q

List four disadvantages of a weak dollar

A

Can lead to inflation
Can cause rises in oil prices
Decreases global travel for Americans
Can contribute to falls in stock price

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32
Q

What are the forces that shape the way people live, work, produce, and consume?

A

Social, Cultural, Demographic, and Natural Environment Forces

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33
Q

List the six key political variables

A

Government regulations
Patent laws
Relationships between countries
Import/Export Regulations
Lobbying Activity
Elections

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34
Q

Are political, governmental, and legal forces important considerations to a firm?

A

Yes. These factors can represent key opportunities and/or threats for all organizations

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35
Q

Are technological forces important considerations to a firm?

A

Yes. Rates of technological change can enhance or destroy business performance.

Technological factors represent major opportunities and threats that can impact:
Customers
Products
Markets
Manufacturing Processes

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36
Q

What is data mining?

A

Data Mining means analyzing huge amounts of data in order to determine trends and garner information to make decision making more effective.

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37
Q

What is business analytics?

A

Business Analytics is an MIS technique that involves using software to help executives make decisions.

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38
Q

What are the 5 characteristics of the most competitive companies?

A

Strive to continually increase market share
Use the mission/vision to guide decision-making
Always strive to improve
Grow through acquisition when possible
Hire and retain the best employees and managers

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39
Q

Name two frameworks for assessing external factors.

A

Porter’s Five Forces
PESTEL

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40
Q

Why is the assessment of rival companies important?

A

External assessment includes identifying rival firms and evaluating their strengths and weaknesses.

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41
Q

What are Porter’s Five Forces?

A

Rivalry among existing competitors
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitutes

42
Q

Business Strategies are impacted by all six external factors in the PESTEL framework.
List the six external factors.

A

Political
Economic
Social
Technological
Environment
Legal

43
Q

Define ‘assumptions’ in the context of strategic management

A

Assumptions are the best present estimates of the impact of major external factors

Planning is impossible without making assumptions
Wild guesses should never be made in strategic planning
Instead, reasonable assumptions must be made based on available information

44
Q

What is the Competitive Profile Matrix (CPM)?

A

The CPM identifies a firm’s major competitors and its particular strengths and weaknesses in relation to a sample firm’s strategic position.

45
Q

Describe three characteristics of a Competitive Profile Matrix

A

Weights and total weighted scores have the same meaning for both the CPM and EFEM.
However, critical success factors in a CPM include both internal and external issues.
Therefore, ratings in a CPM refer to strengths and weaknesses (1 = major weakness; 2 = minor weakness; 3 = minor strength; 4 = major strength).

46
Q

What are two ways strategic management scholars view frms?

A

Industrial Organization View
Resource Based View

Effective integration and understanding of both is key to securing and keeping competitive advantage.

47
Q

Define the Industrial Organization (I/O) View

A

The I/O View advocates that external (industry) factors are more important than internal factors for achieving sustainable competitive advantage.

48
Q

What are 5 external factors that might be considered in an I/O View?

A

Economies of scale
Barriers to market entry
Product differentiation
The economy
Levels of competitiveness

49
Q

What is an EFEM?

A

The External Factor Evaluation Matrix (EFEM) allows strategists to summarize and evaluate the external factors most important to a firm.
They should be as quantitative as possible, though this is not conceivable for all factors.

50
Q

What is the RBV View?

A

The Resource-Based View (RBV) advocates that internal resources are more important for a firm than external factors in sustaining competitive advantage.
To sustain competitive advantage, resources must be valuable, rare, inimitable, or non-substitutable.
(This is known as the VRIN Framework.)

51
Q

Name four physical resources (RBV)

A

plant and equipment
location
technology
raw materials

52
Q

Name three human resources (RBV)

A

employees
experience
knowledge

53
Q

Name four organizational resources (RBV)

A

firm structure
planning processes
information systems
patents

54
Q

Are internal or external resources more important to a firm?

A

The resource-based view (RBV) suggests that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage.
Resources are key to competitive advantage. In order to provide a sustainable competitive advantage, resources must be:
Valuable
Rare
Inimitable
Non-substitutable

55
Q

Describe the goals of internal assessment.

A

Internal Assessment identifies strengths and weaknesses in the functional areas of the business.
Strengths and weaknesses, paired with external opportunities and a strong mission/vision, provide the foundation for establishing strategies.

56
Q

List the 6 major areas of internal operations

A

Management
Marketing
Finance and Accounting
Production and Operations
Research and Development (R&D)
Management Information Systems

57
Q

List the 5 management functions

A

Planning
Organizing
Motivating
Staffing
Controlling

58
Q

Is Planning important in the Strategic-Management Process (SMP)? Why?

A

Planning is most important in the strategy formulation stage of the Strategic-Management Process (SMP)
Planning consists of preparing for the future by:
Forecasting
Establishing objectives
Devising strategies
Creating policies
Setting goals

59
Q

Is Organizing important in the Strategic-Management Process (SMP)? Why?

A

Organizing is most important in the strategy implementation stage of the Strategic-Management Process (SMP)
Organizing involves managerial activities which result in a structure of task and authority relationships. Examples include:
Organizational Design
Job Descriptions
Span of Control
Coordination

60
Q

Is Motivating important in the Strategic-Management Process (SMP)? Why?

A

Motivating is most important in the strategy implementation stage of the Strategic-Management Process (SMP)
Motivating can be defined as efforts directed toward shaping human behavior. Topics related to motivation include:
communication
behavior modification
job satisfaction
morale

61
Q

Is Staffing important in the Strategic-Management Process (SMP)? Why?

A

Staffing is most important in the strategy implementation stage of the Strategic-Management Process (SMP)
Staffing activities are centered on personnel or human resource management. Important staffing activities include (among others):
Wage and salary administration
Employee Benefits
Interviewing
Hiring / Firing
Training
Employee Safety

62
Q

Is Controlling important in the Strategic-Management Process (SMP)? Why?

A

Controlling is most important in the strategy evaluation stage of the Strategic-Management Process (SMP)
Controlling refers to activities directed toward ensuring that actual results are consistent with planned results. Key areas of concern include:
Quality control
Inventory control
Expense control
Rewards
Sanctions

63
Q

Define Marketing.

A

Marketing: the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services

64
Q

List the functions of marketing

A

The functions of marketing include:
Customer analysis
Selling products and services
Product and service planning
Pricing
Distribution
Marketing research
Opportunity analysis

65
Q

Name the three decisions influenced by Finance and Accounting

A

Investment decision
Financing decision
Dividend decision

66
Q

Define Investment decision

A

Investment decision: the allocation of capital and resources to projects, products, and divisions of an organization.
Also known as capital budgeting

67
Q

Define Financing Decision

A

Financing decision: the examination of various methods by which a firm could potentially raise capital and determination of the best
Debt-to-equity ratio
Debt ratio

68
Q

Define Dividend decision

A

Dividend decision: the amount of funds that are retained in a firm compared to the amount paid out to stockholders
Earnings-per-share ratio
Dividends-per-share ratio
Price-Earnings ratio

69
Q

Define Production and Operations.

A

Production and Operations is responsible for activities which transform inputs into goods and services.

70
Q

What is the key strategic variable for production?

A

The key strategic variable for production is capacity utilization.
the extent to which a manufacturing plant’s actual output reaches its potential output

71
Q

Why do organizations invest in Research and Development?

A

Organizations invest in R&D believing that such investments will lead to a superior product or service that will provide competitive advantage.

72
Q

What types of companies invest heavily in R&D?

A

Technology
Product Development / Creation

73
Q

What is the purpose of a Management Information Systems (MIS)?

A

A management information system (MIS) receives raw material from both the external and internal evaluation of an organization.
MIS improves the performance of an enterprise by improving the quality of managerial decisions.
All business functions are thereby tied together.

74
Q

Describe Value Chain Analysis (VCA)

A

Value Chain Analysis: the process whereby a firm determines the costs associated with organizational activities from start to finish.
According to Michael Porter, the business of a firm is a value chain, where the total revenues minus total costs of firm activities create value.

75
Q

Describe a sample value chain

A

obtain raw materials  design products  build manufacturing facility  develop cooperative agreements  provide customer service

supplier costs  production costs  distribution costs  sales and marketing costs  customer service costs  management costs

76
Q

What is a core competency in the context of VCA?

A

Core competency: a link in the value chain in which a firm performs especially well
Example: core competencies for Walmart:
Inventory control
Volume purchasing

77
Q

What is a benchmarking in the context of VCA?

A

Benchmarking: an analytical tool used to determine whether a firm’s value chain is competitive compared to rivals
This can include:
Measuring costs to determine best practices
Duplicating or improving upon the best practices of competitors

78
Q

What is IFEM?

A

The Internal Factor Evaluation Matrix (IFEM) allows strategists to summarize and evaluate the strengths and weaknesses in the functional areas of a firm.

79
Q

What is important about the factors in IFEM?

A

Factors should be actionable and provide insight regarding potential strategy.
Be as quantitative as possible.
Amounts
Percentages
Numbers
Ratios

80
Q

True or False? IFEM is about Strengths and Weaknesses while EFEM is about Opportunities and Threats.

A

TRUE

81
Q

True or False? EFEM is about Strengths and Weaknesses while IFEM is about Opportunities and Threats.

A

FALSE

82
Q

What are long-term objectives?

A

Long-term objectives: results which a firm hopes to attain in more than one year’s time

83
Q

What are strategic objectives?

A

Strategic objectives:
larger market share
quicker delivery than competitors
lower costs than competitors
wider geographic coverage than competitors

84
Q

What are financial objectives?

A

Financial objectives:
growth in revenues
growth in earnings
larger profit margins
rising stock price

85
Q

What happens when firms do not manage by objectives? (4 aproaches)

A

Managing by Extrapolation: “If it isn’t broken, don’t fix it.” Keep doing the same thing if things are going well.
Managing by Crisis: Reaction-based management. Strategists focus on the most pressing issues at a given time.
Managing by Subjectives: Management guesses what is most important and tries their best to accomplish what they think should be done.
Managing by Hope: Based on the idea that the future is uncertain. If a decision fails, hopefully the second or third decision will succeed.

86
Q

Name two primary means for achieving strategies

A

Joint Ventures and Partnering
Mergers and Acquisitions

87
Q

Describe Joint Ventures & Partnering

A

Joint venture: two or more companies form a temporary partnership with the purpose of capitalizing on the same opportunity (creates a new third entity).
Cooperative Arrangements:
Research and development partnerships
Cross-distribution agreements
Cross-manufacturing agreements
Joint-bidding

88
Q

Describe Mergers and Acquisitions

A

Merger: when two organizations of about equal size unite to form one enterprise
Acquisition: when a large organization purchases a smaller firm
Hostile Takeover: when a merger or acquisition is not desired by both firms
Friendly Merger: when a merger or acquisition is desired by both firms

89
Q

What are the advantages of acquisitions?

A

Increased market share
Increased speed to market
Lower risk compared to developing new products
Increased diversification
Less competition

90
Q

What are the disadvantages of acquisitions?

A

Inadequate valuation of target
Acquisition premium: the difference between the estimated real value of a firm and the actual price paid to obtain it.
Inability to achieve synergy
Typically financed through taking on large amounts of debt

91
Q

Describe First Mover and Second Mover advantages for achieving strategies

A

First Mover Advantage: the benefits a firm can achieve by entering a new market or developing a new product or service prior to rival firms
Second Mover Advantage: a related concept where firms enjoy similar benefits to the above but with considerably less risk

92
Q

What is Outsourcing?

A

Business-process outsourcing (BPO): when companies hire other companies to take over various parts of the functional operations, such as:
Human resources
Information systems
Payroll
Customer service
Reshoring: a relatively new term that refers to U.S. companies planning to move some of their manufacturing back to the USA.

93
Q

List the four primary types of strategies

A

Integration Strategies
Intensive Strategies
Diversification Strategies
Defensive Strategies

94
Q

There are broadly 11 types of strategy. What’s the danger of a combination strategy?

A

Many firms pursue two or more strategies simultaneously (combination strategy)
This can be risky.
Expensive
Organizations have limited resources
Thus, priorities must be established.

95
Q

What are the kinds of Integration Strategies?

A

Integration Strategies
Forward Integration: gaining ownership or increased control over distributors or retailers
Backward Integration: seeking ownership or increased control of a firm’s suppliers
Horizontal Integration: seeking ownership or increased control over competitors

96
Q

What are the kinds of Intensive Strategies?

A

Intensive Strategies
Market Penetration: seeking increased market share for present products or services in present markets through greater marketing efforts
Market Development: introducing present products or services into a new geographic area
Product Development: seeking increased sales by improving present products or services, or developing new ones

97
Q

What are the kinds of Diversification Strategies?

A

Diversification Strategies
Related Diversification: adding new but related products or services
Unrelated Diversification: adding new, unrelated products or services

98
Q

What are the kinds of Defensive Strategies?

A

Defensive Strategies
Retrenchment: regrouping through cost and asset reduction to reverse declining sales and profit
Divestiture: selling a division or part of an organization
Liquidation: selling all of a company’s assets, in parts, for their tangible worth
Often associated with bankruptcy

99
Q

What are Non-Profits?

A

Non-Profits
For example, certain educational or medical institutions
Two major distinctions for non-profit organizations:
They do not pay taxes
They do not have shareholders to provide capital

The nonprofit sector is by far the largest employer in the United States. For example:
Educational institutions
Medical institutions
Religious organizations
Public Utilities

100
Q

What are governmental organizations?

A

Governmental Organizations
For example, police departments or forestry associations

Distinctions:
They use taxpayer dollars to implement strategies
Generally, mergers and acquisitions are not possible
Politicians often have direct or indirect control over major decisions and resources

Challenges:
Less concern for profitability
Often times leaves consumers with no other options (i.e., monopoly)

Strategic Management, Exam 1 (2 decks)

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