MGMT 425 Study Guide

Chapter 1

Strategic Management Process strategy analysis, strategy formulation, and strategy

implementation. (46)
***analysis, decisions, actions***

Corporate Governance: the relationship among various participants in determining the

direction and performance of corporations. (51)
Primary participants:
The shareholders
The management (led by the Chief Executive Officer)
The Board of Directors (BOD)

Social Responsibility the expectation that businesses or individuals will strive to improve the
overall welfare of society. (55)

shared value, views social responsibility not just as an added cost to businesses.
Triple bottom line approach evaluates a firms performance.

Hierarchy of Goals Organizations express priorities best through stated goals & objectives
that form a hierarchy of goals. (60-64)

Vision evokes powerful & compelling mental images of a shared future

Mission encompasses the organizations current purpose, basis of competition, &
competitive advantage
Strategic Objectives A set of organizational goals that are used to operationalize the
mission statement and that are specific and cover a well-defined time frame.
1. Measurable
2. Specific
3. Appropriate
4. Timely

Chapter 2
Environmental Forecasting the development of plausible projections about the direction, scope,
speed, and intensity of environmental change. (77)

Environmental Scanning surveillance of a firms external environment to predict environmental

changes and detect changes already under way (73)

Environmental Monitoring a firms analysis of

the external environment that tracks the evolution
of environmental trends, sequences of events, or
streams of activities (74)

Competitive Intelligence a firms activities of

collecting and interpreting data on competitors,
defining and understanding the industry, and
identifying competitors strengths and weaknesses. (75)

Scenario Analysis an in-depth approach to environmental forecasting that involves experts

detailed assessments of societal trends, economics, politics, technology, or other dimensions of
the external environment. (77)

SWOT Analysis a framework for analyzing a companys internal and external environment and
that stands for strengths, weaknesses, opportunities, and threats. (78)

General Environment factors external to an industry, and usually beyond a firms control, that
affect a firms strategy. (79)

6 segments: demographic, sociocultural, political/legal, technological, economic, and

global.

Competitive Environment factors that pertain to an industry and affect a firms strategies. (85)

Include: competitors (existing or potential), customers, and suppliers.

Porters Five-Forces Model of industry competition a tool for examining the industry-level
competitive environment, especially the ability of firms in that industry to set prices and
minimize costs. Study of the industry (86)
1. The threat of new entrants.
2. The bargaining power of buyers.
3. The bargaining power of suppliers.
4. The threat of substitute products and services.
5. The intensity of rivalry among competitors in an industry.

Economies of Scale refers to spreading the costs of production over the # of units produced (87)
Barriers to Entry: (87-88)
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale

Strategic groups are clusters of firms that share similar strategies (98)

Strategic groups clusters of firms that share similar strategies: Kirkland and Costco; Target
and Up-and-Up (98)
Vertical Integration
Price/quality
Type of distribution

Strategic groups as an analytical tool (99)

Helps identify barriers to mobility that protect a group from attacks by other
groups
Helps identify groups whose competitive position may be marginal or tenuous
Helps chart the future direction of firms strategies
Helps to think through the implications of each industry trend for the strategic
group as a whole

Chapter 3
Value-chain analysis looks at the sequential process of value-creating activities: (109)
Value is the amount buyers are willing to pay for what a firm provides
The value received must exceed the costs of production

2 Types of Categories (109)

Primary Activities sequential activities of the value chain that refer to the physical
creation of the product or service, its sale and transfer to the buyer, and its service after
sale.
1. Inbound Logistics
2. Operations
3. Outbound Logistics
4. Marketing and Sales
5. Service
Support Activities - activities of the value chain that either add value by themselves or
add value through important relationships with both primary activities and other support
activities.
1. General Administration
2. Human Resources Management
3. Technology Development
4. Procurement

Limitations of SWOT (110)

1.
2.
3.
4.
5.

SWOT cannot show them how to achieve a competitive advantage.

Strengths May Not Lead to an Advantage
SWOTs Focus on the External Environment Is Too Narrow
SWOT Gives a One-Shot View of a Moving Target
SWOT Overemphasizes a Single Dimension of Strategy

Resource-Based View of the firm perspective that firms competitive advantages are due to their
endowment of strategic resources that are valuable, rare, costly to imitate, and costly to
substitute. (119)

Two Perspectives
1. Internal analysis of phenomena within a company
2. External analysis of the industry and its competitive environment.

Types of Firms Resources (121)

1. Tangible Resources - organizational assets that are relatively easy to identify, including
physical assets, financial resources, organizational resources, and tech resources.
2. Intangible Resources organizational assets that are difficult to identify and account for
and are typically embedded in unique routines and practices, including human resources,
innovation resources, and reputation resources.
3. Organizational Capabilities the competencies and skills that a firm employ to
transform inputs into outputs.

Firm Resources and Sustainable Competitive Advantages (122)

Strategic resources have four attributes:
1. Valuable in formulating & implementing strategies to improve efficiency or
effectiveness
2. Rare or uncommon; difficult to exploit
3. Difficult to imitate or copy due to physical uniqueness, path dependency, causal
ambiguity, or social complexity
4. Difficult to substitute with strategically equivalent resources or capabilities

Evaluating Firm Performance (129)

Financial Ratio Analysis

1. Short-term solvency or liquidity
2. Long-term solvency measures

3. Asset management (or turnover)

4. Profitability
5. Market value

Balanced Scorecard - a method of evaluating a firms performance using performance

measures from the customers, internal, innovation and learning, and financial
perspectives.
1. Employees
2. Owners
3. Customer Satisfaction
4. Internal Processes
5. Innovation, Learning, and Improvement Activities
6. Financial Perspectives

Chapter 4

Knowledge Economy, wealth is increasingly created by effective management of knowledge

workers instead of by the efficient control of physical & financial assets. (144)

Intellectual Capital the difference between the market value of the firm and the book value of
the firm, including assets such as reputation, employee loyalty and commitment, customer
relationships, company values, brand names, and the experience and skills of employees. (144)
Intellectual Capital = Market Value Book Value

Human Capital the individual capabilities, knowledge, skills, and experience of a companys
employees and managers. (145)

Social Capital the network of friendships and working relationships between talented people
both inside and outside the organization. (145)

Explicit Knowledge - knowledge that is codified, documented, easily reproduced, and widely
distributed. (145)

Tacit Knowledge - knowledge that is in the minds of employees and is based on their
experiences and backgrounds. (145)

Human Capital Activities (147)

Hire for attitude not for skill.

Quality vs Quantity (Candidates)
Current employees may be best
source of new employees

360-degree evaluation and feedback

Superiors, direct reports, colleagues, and even internal and external customers rate a persons
performance. (152)

 360-degree feedback systems complement teamwork, employee involvement, and

organizational flattening.

Social Network Analysis depicts the pattern of interactions among individuals and helps to
diagnose effective and ineffective patterns. It helps identify groups or clusters of individuals that
comprise the network, individuals who link the clusters, and other network members. (158)

convey needed resources,

have the opportunity to exchange information and support,
have the motivation to treat each other in positive ways, and,
have the time to develop trusting relationships that might improve the groups
effectiveness.

Closure the degree to which all members of a social network have relationships (or ties) with
other group members. (158)

Bridging Relationships - relationships in a social network that connect otherwise disconnected

people. (159)

Structural Holes - social gaps between groups in a social network where there are few
relationships bridging the groups. (159) Silos or stovepipes

Effective collaboration requires overcoming barriers: collaboration does not just happen.
People dont collaborate for various reasons (160)

The not-invented-here or hoarding barrier (people arent willing to provide help)

The search barrier (people are unable to find what theyre looking for)
The transfer barrier (people are unable to work with people they dont know well)

To encourage collaboration, leaders can choose a mix of three levers: (160)

Unification levers create compelling common goals & articulate a strong value of crosscompany teamwork
People levers get the right people to collaborate on the right projects through T-shaped
management (people who simultaneously focus on the performance of their unit)
Network levers build nimble interpersonal networks across the company.
Effective social networks provide advantages for the firm AND for an individuals career
advancement: (160-161)

1. Access to private information communicated in the context of personal

relationships
2. Access to public information from sources such as the Internet
3. Access to diverse skill sets trading information or skills with people whose
experiences differ from your own
4. Access to power

Social capital does have some potential downsides: (162)

1. Groupthink - a tendency in an organization for individuals not to question shared
beliefs.
2. Dysfunctional human resource practices
3. Expensive socialization processes (orientation, training)
4. Individuals may distort or selectively use information to favor their preferred
courses of action

Intellectual property rights are more difficult to define and protect than property rights
for physical assets. (164)
o Unlike physical assets, intellectual property can be stolen.

Dynamic capabilities involve the capacity to build and protect a competitive advantage.
(169)
This requires knowledge, assets, competencies, and complementary assets &
technologies
This also requires the ability to sense & seize new opportunities, generate new
knowledge, and reconfigure existing assets & capabilities.
Dynamic capabilities include internal processes & routines that enable product
development, strategic decision-making, alliances, or acquisitions.

Chapter 5

Business-Level Strategy a strategy designed for a firm or a division of a firm that competes
within a single business. (179)

Use Porters 3 generic strategies to overcome the 5 forces and achieve competitive
advantage:
1. Overall cost leadership
2. Differentiation
3. Focus

Overall Cost Leadership a firms generic strategy based on appeal to the industrywide market
using a competitive advantage based on low cost. (180)
1. One factor often central to an overall cost leadership strategy is the Experience Curve,
which refers to how business learns to lower costs as it gains experience with
production processes.
2. Competitive Parity a firms achievement of similarity, or being on par, with
competitors with respect to low cost, differentiation, or other strategic product
characteristic

Differentiation Strategy a firms generic strategy based on creating differences in the firms
product or service offering by creating something that is perceived industrywide as unique and
valued by customers. (184)

Focus Strategy a firms generic strategy based on appeal to a narrow market segment within an
industry. (189)

A focus strategy has two variants:

1. Cost focus
Creates a cost advantage in its target segment
Exploits differences in cost behavior
2. Differentiation focus
Differentiates itself in its target market
Exploits the special needs of buyers

Combination Strategies firms integrations of various strategies to provide multiple types of

value to customers. (191)

Makes it harder for competitors to imitate

Mass Customization a firms ability to manufacture unique products in small quantities at low
cost. (191)

Profit Pool the total profits in an industry at all points along the industrys value chain. (192)

The industry life

cycle (199)

1.

Introduction

2.

Growth

3. Maturity
4. Decline
Generic strategies, functional areas, value-creating activities, & overall objectives all
vary over the course of an industry life cycle

Introduction Stage is when: (201)

Products are unfamiliar to consumers
Market segments are not well-defined
Product features are not clearly specified

 Competition tends to be limited

Strategies:
Develop a product and get users to try it
Generate exposure so the product becomes standard
Growth Stage is: (202)
Characterized by strong increases in sales
Attractive to potential competitors
When firms can build brand recognition
Need for financing complementary value chain activities such as marketing, sales,
customer service, and research and development.
Strategies:
Create branded differentiated products
Stimulate selective demand
Provide financial resources to support value-chain activities

Maturity Stage is when: (202)

Aggregate industry demand slows
Market becomes saturated, few new adopters
Direct competition becomes predominant
Marginal competitors begin to exit
Strategies:
Reverse Positioning a break in industry tendency to continuously augment
products, characteristic of the product life cycle, by offering products with fewer
product attributes and lower prices.
Breakaway Positioning a break in industry tendency to incrementally improve
products along specific dimensions, characteristic of the product life cycle, by
offering products that are still in the industry but that are perceived by customers
as being different.

Decline Stage is when: (203)

Falling Sales and Profits
Price competition increases
Industry consolidation occurs
Strategies:
Maintaining the product position
Harvesting Strategy - a strategy of wringing as much profit as possible out of a
business in the short to medium term by reducing costs.
Exiting the market
Consolidation Strategy a firms acquiring or merging with other firms in an
industry in order to enhance market power and gain valuable assets.

Turnaround Strategy involves reversing performance decline & reinvigorating growth toward
profitability through (206)
Asset & cost surgery
Selected market & product pruning
Piecemeal productivity improvements

Chapter 6

Diversification initiatives must create value for shareholders through (218)

Mergers and acquisitions
Strategic alliances
Joint ventures
Internal development

Related businesses (219)

****Acquired or Merged****

Benefits derive from horizontal relationships

Sharing intangible resources such as core competencies in marketing
Sharing tangible resources such as production facilities, distribution
channels via vertical integration

Horizontal Relationships: core competencies between businesses will translate. (219)

Economies of scope refers to cost savings from leveraging core competencies or sharing related
activities among businesses in the corporation (219)

Unrelated businesses (219)

Benefits derive from hierarchical relationships
Value creation derived from the corporate office
Leveraging support activities in the value chain

Core competencies reflect the collective learning in organizations. Can lead to the creation of
value and synergy if (220)
They create superior customer value
The value chain elements in separate businesses require similar skills
They are difficult for competitors to imitate or find substitutes for