WPC 480 Exam 1 2023 with 100% correct questions and answers

Strategic Management - integrative management - combines: Analysis, Formulation, and Implementation - designed to look for a companies competitive advantage - helps you think like a GM What is Strategy? - to Gain and Sustain Competitive Advantage - its a set of Goal-directed actions to gain and sustain Superior Performance What makes a Good Strategy? 1.Analyze firms External and Internal Environments 2. Strategy Formulation 3. Accomplished through Strategy Implementation How to Calculate Receivable Days? = Accounts Receivable / Revenue Per Day How to Calculate Inventory Days? = Inventory / Revenue Per Day How to Calculate Return on Revenue, ROR? = Net Income / Total Revenue Core Values - are ethical standards - designed to Govern the behavior of individuals - used to provide Vision and Competitive Advantage for its Mission - "Guard Rails" put in place Mission - used to describe what an organization actually does - product and services plan the markets in which it will compete - what the company plans to provide consistently What are Strategic Commitments ? - are expensive actions - long-term oriented - difficult to reverse - steps are taken to achieve mission - rivalry will occur - used to be effective and back up a companies Vision and Missions Product-Oriented Vision Statement - defines a business in terms of a good or service - tend to force Managers to take a myopic (nearsighted) view of the competitive landscape - Less flexible "We are in the typewriter business" Customer-Oriented Vision Statement - designed to provide solutions to customer needs - adapt to changing environments - Needs-based vision** Visionary Companies - have aspirational ideas that are NOT exclusive financially* - outperform companies in the long run* - this vision makes employees feel they are apart of something bigger, highly motivating* Strategic Positioning - to create Superior Value and Costs - offering similar value at lower costs (controlling costs) - resources are LIMITED - used to value customers and control costs - requires trade-offs Vision - captures an organizations aspiration - outlines its main goals to accomplish - What do we want to ultimately accomplish? - tied to Strategic Intent What is the AFI Framework Designed for? 1 Explains and predicts differences in firm Performance (Competitive Forces) 2. Help Managers formulate and implement strategy (Strategic Groups) Strategy - goal- directed actions - used to gain and sustain superior performance - strategy is about creating SUPERIOR value* - adopting a set of goals collectively Competitive Advantage - is always relative, NOT absolute - compare performance to benchmark (other firms, same industry) - when a business has superior performance over similar businesses in its industry Sustainable Competitive Advantage - firm that is able to outperform its competitors or industry average - usually over a long period of time Competitive Disadvantage - when a firm under-performs its rivals or industry average Competitive Parity - when two firms perform at the same level - happens with Perfect Competition - however, it doesn't mean they are doing everything similar** Main Steps to Achieve Competitive Advantage 1. Vision, What do we want to accomplish ultimately? 2. Mission, How do we want to accomplish it? 3. Values, What commitments do we make. What guardrails do we have to stay focus and true to our vision and mission* Formulation (Strategy Formulation) 1. Business Strategy, How should the firm compete? (cost leadership, differentiation, value innovation) 2. Corporate Strategy, Where should the firm compete? (industry, markets, geographically) 3. Global Strategy, How and where should the firm compete? (Local, Regional, National, or International) Where and How do we Compete? Implementation (Strategy Implementation) 1. Organizational Design, How should the firm turn strategy into action? 2. Corporate Governing, What governing form is most effective? How does the firm anchor decisions? How does the Work get done and Strategy Execution? Economic Contribution - determines the greater difference between Value Creation and Cost - this large difference determines the competitive advantage Grandiose Statements - these are NOT strategies* - "Our Strategy is to Win" or "We Will be # 1" - these thoughts and foundation must be backed up with action - having a live by statement is NOT useful without strategy and implementation Strategic Intent - is a Stretch Goal - makes the organization feel like they are winning - aiming to build necessary resources and capabilities (through continuous learning) Upper-echelons Theory - it's the top management team - outcomes and performance levels are reflections of Values of members of top management Level-5 Leadership Pyramid Level 5: Executive (striving for greatness with willpower and humility) Level 4: Effective Leader (compelling vision and mission to guide groups to superior performance, "Does The Right Thing") Level 3: Competent Manager (efficient and effective in organizing resources, "Does THINGS Right") Level 2: Contributing Team Member (work effectively with others and achieve team goals) Level 1: Highly Capable Individual (productive contributions, motivated, talented, highly skilled) (each level builds on the previous level, only move on to the next level when the current level is mastered) Strategic Management Process - lays the foundation for sustainable competitive advantage 1. Strategic Planning 2. Scenario Planning 3. Strategy as planned emergence Top-Down Strategic Planning in the AFI (Analyze, Formulate, Implement) Derived from Military Strategy** (Rational Process) - best used for Businesses in slow-moving, stable environments Analysis ( Vision, Mission, and Values; External Analysis, Internal Analysis) Formulate (Corporate Strategy; Business Strategy; Functional Strategy) Implementation (Structure, Culture, and Control; Corporate Governance and Business Ethics) Scenario Planning - asks the "What if" Analysis - determined by Top Management - designed to Anticipate possible futures Black Swan Events - these are incidents describing highly IMprobable outcomes - however, these cause high-impact events Dominant Strategic Plan - this happens in the IMPLEMENTATION stage - top managers decide based on the current reality of the situation Illusion of Control - caused by a Managers Tendency to overestimate their ability to control events - the belief that a Strategic Plan will address any scenario Realized Strategy - formulated through combining Top-Down Strategic Intentions and Bottom-Up Emergent Strategy Emergent Stratgey - describes any Unplanned Strategic Initiative, this arises deep within an organization** Intended Strategy - the outcome of a Rational and Structured Top-Down Strategic plan - Rational, Top-down, and Strategic Strategic Initiative - used as a planned emergence model - this includes an activity a firm will pursue to Explore and Develop New Products and Processes, New Market or New Ventures** Autonomous Actions - are Strategic Initiatives, under-taken by Lower Level Employees (in response to unexpected situations) - this results from Successful Emergent Strategies - You need Internal Champions for autonomous actions to be successful Serendipity - describes the Random Events, Pleasant Surprises, and Accidental Happenstances - these have a Profound Impact on firm's Strategic Initiatives Resource-Allocation Process (RAP) - part of the business that determines how it Allocated its Resources - this is based on Predetermined Policies (critical to shaping the businesses realized strategy) Using the 70-20-10 Rule for Development and Business Processes - Spending 70% of time focusing on the main business - Spending 20% of the time on new ideas chosen by the workers (one day a week) - The Remaining 10% is spent on total Wild Card ideas Planned Emergence - allows Bottom-Up Strategic Initiatives (ideas that can be used to help the business) - best used for Fast-moving and changeable environments - New Startup Companies Stakeholder Strategy - managing diverse set of Stakeholders effectively - used to gain and sustain competitive advantage - focusing on just Shareholders will result in Failure** - this is designed to help manage the Internal AND External Stakeholders Christine Shropshire (Ideas about Strategy) watch Video Holistic (broad perspective, action oriented, "everything you do") Proactive VS Reactive (creating or controlling a situation, "Anticipation") Incremental (small changes in your strategy) or Dramatic (major changes in your strategy) Ex. (IHOB, International House of Burgers vs IHOP) Iterative Process (process for calculating a desired result, adding to an existing Business, continual**) Blue Ocean Strategy - simultaneous pursuit to be different and offer low cost options - this is designed to open a new market space and create new demand Strategic Initiatives Include: 1. Resource Allocation Process (way a firm allocates its resources) 2. Autonomous Actions (lower level employees, response to unexpected situations) 3. Serendipity (describes random events, pleasant surprises) Can emerge from Top-down planning or Bottom-up process Stakeholder Impact Analysis (Breakdown, 5 Step Process) 1. Who are our Stakeholders? 2. What are our Stakeholders Interests and Claims? 3. What opportunities and threats do our Stakeholders present? 4. What Economic, Legal, Ethical, and Philanthropic Responsibilities do we have to our Stakeholders? 5. What should we do to effectively address the Stakeholder concerns? Corporate Social Responsibility (CSR) - A business's concern for the welfare of society. - Helps firms recognize and address the: Economic, Legal, Ethical, and Philanthropic expectations that society has for that Business Philanthropic Responsibilites - Subsumed under idea of Corporate Citizenship - Voluntarily giving back to society - Tie closely to the Ethical standards of the Business "Corporate Citizenship" Economic Responsibilities - are the foundation building block - how a company impacts the economy "Gain and sustain competitive advantage" Ethical Responsibilities - a business's duty to meet the expectations of society beyond its economic and legal responsibilities "Do what is right, just, and fair" The Pyramid of Corporate Social Resonsibility - Society and Shareholders REQUIRE Economic and Legal Responsibilities be carried out consistently - Ethical and Philanthropic Responsibilities are EXPECTED from Society Stakeholder Impact Analysis (Definition) - provides a decision tool - strategic leaders can: Recognize, Prioritize, and Address the need for different Stakeholders - Determine POWER, LEGITIMATE CLAIM, URGENT CLAIM When does a Stakeholder have POWER over a company ? (Stakeholder Impact Analysis) - when the Stakeholder can get the company to do something that it wouldn't normally do - POWER over the Business When does a Stakeholder have a LEGITIMATE CLAIM ? (Stakeholder Impact Analysis) - when it is perceived to be legally valid or otherwise appropriate When does a Stakeholder have a Urgent Claim? (Stakeholder Impact Analysis) - when it requires a company's immediate attention and response Business Strategy Concern? - How to compete? Cost Leadership, Differentiation, or Value Innovation Functional Strategy Concern? - How to implement a chosen Business Strategy? Require various activities across various functions Strategic Leadership Process Ability to: - Anticipate - Envision - Maintain Strategic Flexibility - Empower others to create strategic change - Multi-functional work - Consideration of the entire enterprise - A managerial frame of reference Top Management Team (TMT) - Composed of the key managers who are responsible for selecting and implementing a firms strategy "Think outside the Box" - Bring greater capacity - Better innovation and strategic change Heterogeneous TMT (Top Management Team) - Varied expertise and knowledge (think of your different experiences that others might not have or know of) - Multiple perspectives - Alternative strategies - Consensus Driven - More diverse - Bring more expertise Homogeneous TMT (Top Management Team) - Know what works - Less consensus drive - In the industry for longer and more focused on that industry External Factors (Task Environment) - when managers DO have influence - such as composition of strategic groups* - or structure of industry* PESTEL Model (factors) General Environment Factors 1. Political 2. Economic 3. Sociocultural 4. Technological 5. Ecological 6. Legal This model provides a straightforward way to scan, monitor, and evaluate the important external factors that might effect a firm** Sociocultural Factors (PESTEL Model) - capture a society's culture, norms, and values - constantly in flux/movement Legal Factors (PESTEL Model) - include the official outcome of political processes - used in laws, mandates, regulations, and court decisions - deregulation (Airline Industry)** Threat of Substitutes These happen when: - substitute offers an attractive price-performance trade-off - the buyers cost of switching to the substitute is low Rivalry Among Competitors Companies in the same industry COMPETE for market share and profitability, Determined BY: - Competitive Industry Structure - Industry Growth - Strategic Commitments - Exit Barriers Competitive Industry Structure Refers to elements and features common to all industries 1. Number and Size of its competitors 2. Purchasing Power 3. Type of Product or Service 4. Height of entry barriers Fragmented Industry - many small firms - generating low profitability Consolidated Industry - dominated by few firms or even just 1 - potential to be highly profitable Competitive Industry (Composition) 1. Perfect Competition (Competitive Parity) 2. Monopolistic Competition (Differentiated Product) 3. Oligopoly (Game Theory, Few Firms) 4. Monopoly (One firm, VERY HIGH entry barriers, HIGH consolidation) Perfectly Competitive Industry - Fragmented industry - many small firms, commodity product, easy entry, no room for higher prices - smaller in size and resources - difficult to achieve competitive advantage Monopolistically Competitive Industry - has many firms, differentiated product, some obstacles, and ability to raise prices - easy to retain customers - Ex. Computer Hardware Industry Oligopolistic Competitive Industry - few large firms, different products, HIGH barriers to entry and some degree of purchasing power - competing firms are Interdependent** - each other firms decision affects the other - this structure uses Game Theory**** (attempting to predict strategic behaviors by assuming moves/reactions of competitors can be anticipated) Michael Porter (5 Forces Model) "Attractiveness" Designed to help managers understand profit potential of different INDUSTRIES How do managers position them selves? 1. Competition must be viewed BROADLY, must encompass other forces LIKE: Buyers Suppliers Potential New Entry Rivalry and Threat of Substitutes. 2. Profit is a function of the 5 forces that shape competition. The Power of Suppliers - can raise costs - can demand higher prices for same goods - can capture part of economic value created by firms - reduce quality of products - reduce industry's profits The Power of Buyers - are the customers of the industry - higher quality and more service = higher production costs - can reduce industry profit potential and profitability** - obtain more price discounts* - threat to producing firms, they capture economic value 5 Forces Model Insight - stronger 5 forces = LOWER industry profit potential (industry is less attractive for competitors) - weaker 5 forces = HIGHER industry's profit potential (industry is more attractive) Strategic Group Model - used to explain differences within the same industry - clusters different firms into groups based on strategic dimensions Economic Factors (PESTEL Model) "Outside Factors" - external environment 1. Growth Rates (change in amount of goods/services, strong vs weak economy) 2. Levels of Employment 3. Interest Rates 4. Price Stability (Inflation and Deflation) 5. Currency Exchange Rates Network Effects - the effect one user (known individual) has on the value of that product or service for other users - value of products can increase by this process resulting in Positive Externality Customer Switching Costs - moving from one Supplier to another - are ONETIME Sunk Costs - can provide a barrier to entry Capital Requirments - "price of the entry" to a new industry - how much capital do we need to compete? - determining production processes - investments used to set up plans and machinery - cover start-up losses Slow or Negative growth is? When there are: - Price Discounts - New Product Releases - Promotion Campaigns - Retaliation of Rivals Natural Monopolies - these include utility companies like water, gas, electricity, and cable - HOWEVER, fixed costs for these businesses are so high, that services or product may not be offered WITHOUT the HELP from Government** - happens when businesses would otherwise not be profitable Near Monopolies - companies who gain significant market power by owning patents, proprietary technology etc. - changing the industry structure for their best interest, they create their own industry because of their products capabilities Explicit Coordination - include price fixing* - illegal in the US Tacit Coordination - the synchronization of members' - actions based on assumption about what others on the team are likely to do "unspoken understanding" What are Entry Barriers? 1. Economies of Scale 2. Network Effects 3. Customer Switching Costs 4. Capital Requirements 5. Advantages Independent of Size 6. Government Policy 7. Credit threat of Retaliation Incumbent Firms (Advantages Independent of Firms Size) Possess cost and quality advantages, Based on: 1. Brand Loyalty 2. Proprietary Technology 3. Access to Raw Materials and Distribution Channels 4. Favorable Geographic Locations 5. Cumulative Learning and Experiencing Effects When is the Power of Buyers HIGH? - When there are few buyers - Standardized Products - Buyers have LOW or NO switching costs - Buyers can threaten Backwardly integrate into the industry When is the Power of Buyers Price Sensitive? - Buyers purchase a significant fraction of its cost structure (procurement budget) - Buyers earn lower profits and are strapped for cash - Quality PURCHASE Cost is not affected by Quality INPUT Cost How to Enter the Market? We need to consider: 1. Who are the players? (identify competitors, internal and external factors) 2. When to enter? (timing of entry, whether the industry is growing, shakeout, matured, or declined) 3. How to enter? (leveraging existing assets, partner with a business, establish a niche) 4. What type of entry? (product market, business model needed) Exit Barriers - caused by rivalry - these are obstacles that determine how easily a firm can leave that industry - combine economic and social factors Co-opetition means? - cooperation by competitors to achieve a strategic objective - but also becoming more competitive with each other Economic Value - firms create this value by decreasing the Cost to make the product and increasing the Value the product provides - firms must be able to capture a significant value to create competitive advantage* = V (value) - C (cost) also = (Price Wanting to sell - Price Willing to Sell) + Profit per Unit Core Competencies - unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage - allows firm to differentiate its products and services from their rivals - they are found through Resources (any assets) and Capabilities (organizational and management skills) Competitive advantage CAN be driven by core competencies** Resource Based View - model that sees Certain types of resources as key to superior firm performance Tangible Resources VS Intangible Resources Tangible = physical attributes and are visible, like, labor, capital, land, buildings, plant, equipment Intangible = NO physical attributes, like, firm's culture, knowledge, brand equity, intellectual property 2 Critical assumptions with Resource Based View 1. Resource Heterogeneity, a firm is a bundle of resources and capabilities that differ across firms (looking at resources of other firms in the same industry) 2. Resource Immobility, firm has resources that are "sticky" and do NOT move easily. (stickiness is resources differences BETWEEN firms) The VRIO Framework (Valuable, Rare & Costly to Imitate, Organized to Capture Value "non-substitutable") (this framework explains and predicts firms Competitive Advantage) 1. Valuable ? - (No = Competitive Disadvantage, Yes = move to next step) 2. Rare ? - (No = Competitive Parity, Yes = move to next step) 3. Imitation ? - (Yes = Temporary Competitive Advantage, No = move to next step) 4. Organized to Capture Value ? - (No = Temporary Competitive Advantage, Yes = Sustainable Competitive Advantage) Value Chain - the internal activities a firm engages in when transforming Inputs into Outputs Barriers to Imitation (Isolating Mechanisms) They prevent rivals from taking a firm's advantage away Including: High Expectation of future resource value Path dependence Casual Ambiguity Social Complexity Intellectual Property Path Dependence - Options one faces currently, are limited by decisions made in the past* "Time cannot be compressed at will" Time Compression Diseconomies (Path Dependence) - to achieve the same outcome in less time - Results tend to be less attractive or desirable than expected** Casual Ambiguity - a situation where the cause and effect of the event are not understood - Why is something selling more at a given time or happening for different reasons ? Social Complexity - where different social and business systems interact - emerges when 2 or more systems are combined** - operate through 6 Sigma or ISO 9000 Valuable Resource - one that allows a firm to Exploit an External Opportunity or offset an External Threat - allows firm to Increase Economic Value** ( V - C ) What are Primary Actitivities ? - add value directly as firm transforms Inputs to Outputs (Raw materials to Marketable Products) Supply Chain Management Operations Distributions Marketing and Sales After-sales Service What are Support Activities? - things that add value indirectly R & D Information Systems Human Resources Accounting & Finance Firm Infrastructure processes, policies, and procedures Core Rigidities - the inability to be open to change; may result from willing to not change a core competency - this happens when we DONT reinvest in the business and upgrade resources to increase the businesses capabilities Dynamic Capabilities Describe a firms ability to: Create, Deploy, Modify, Reconfigure, Upgrade, or Leverage its resources over time - this is essential to move from short lived competitive advantage to Sustained Competitive Advantage Dynamic Capabilities Perspective (breakdown) - requires constantly adjusting the firms resource base - actively being involved in the economic decisions of the business Resource Stocks - used to develop Dynamic Capabilities - refer to a firms current level of Intangible Assets - for an asset to be included as Resource Stock it should be built in over time (always looking to improve) External Opportunities ( O ) and Threats ( T ) (SWOT Analysis) - these are in the firms General Environment Can be captured using PESTEL and Porter's 5 Forces Internal Strengths ( S ) and Weakness ( W ) (SWOT Analysis) - these are related to Resources, Capabilities, and Competencies - can be applied using the VRIO framework Strategic Equivalence - this happens through substitution What are the duties of Senior Managers? - Manage Operations - Sustain High Performance - Better decisions - Courageous - Understand how their decisions affect the organization - Provide feedback How a manager's latitude on decision making is determined ? - Latitude is room to act and have action, Includes: How much movement do managers have? External environment Managers characteristics Characteristics of the Organization What is the Strategy around both Heterogeneous and Homogeneous top level managers ? Heterogeneous, alternative strategies, different lens (used to find next competitive advantage, NEW ideas) Homogeneous, veterans and competitors (quick decisions and on the same page, repetitive, OLDER ideas) How do we measure Firm-Level Competitive Advantage? - estimate the economic value created for all products and services that are offered by the firm The Balanced Scorecard (Questions) - helps managers achieve strategic objectives more effectively 1. How do customers view us? (what are the customers understanding of our company) 2. How do we create value? (focusing on business processes and structures) 3. What core competencies do we need? (focuses Internally on Managers) 4. How do shareholders view us? (view of financial performance) Balance Scorecard Breakdown Designed to: 1. Communicate and link strategic vision to employee's in Firm 2. Translate the vision into measurable Operational Goals 3. Design and Plan Business processes 4. Implement feedback and learning. Modify and adapt strategies where needed Accommodates both Short and Long term performance metrics** Triple Bottom Line (3 P's) Profits (The Economic Dimension) People (The Social Dimension) Planet (The Ecological Dimension) Achieving positive results in all 3 areas, Economic, Social, and Ecological, leads to Sustainable Strategy*** How can firms react to price changes from Competitors ? 1. Can either charge higher prices to reflect higher value and increase Profitability 2. Or, can charge the same price as competitors and gain Market Share Efficient Market Hypothesis Includes: Past and Current information and Future firm expectations All of this information is embedded in the Market Price of Firms stock** Business Model (What the Business Plans to do & how) - how a company is going to make money - how the firm conducts its business with its buyers, suppliers, and partners Market Capitalization - captures the total dollar market value of a company's total outstanding shares Share price ( x ) # of shares outstanding What are 3 standard dimensions for measuring Competitive Advantage? 1. Accounting Profitability 2. Shareholder Value 3. Economic Value Transform Strategy into Actions by ? (Blueprint Actions) - Structures, Processes, Culture, and Procedures