1 Ch. Know the definitions of Strategy. Strategy: management's action plan for running the business and conducting operations. The crafting of a strategy represents a managerial commitment to pursue a particular set of actions in growing the business, attracting and pleasing customers, competing successfully, conducting operations, and improving the company's financial and market performance Strategy = how management intends to grow the business, how it will build a loyal clientele, and outcompete rivals, how each functional piece of the business will be operated, how performance will be boosted Know what we mean by sustainable competitive advantage. Sustainable competitive advantage: 1) Striving to be the industry's low-cost provider, thereby aiming for a cost-based competitive advantage over rivals (ex: Wal-Mart & Southwest Airlines) 2) Outcompeting rivals based on such differentiating features as higher quality, wider product selection, added performance, value-added services, more attractive styling, technological superiority, or unusually good value for the money (ex: Johnson & Johnson product reliability, Chanel & Rolex top of the line prestige, Amazon's wide collection and convenience) 3) Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of serving the special needs and tastes of buyers comprising the niche (ex: eBay online auctions, Starbucks premium coffees, Whole Foods Market natural and organic foods) Developing expertise and resource strengths that give the company competitive capabilities that rivals can't easily imitate or trump with capabilities of their own. (ex: FedEx next-day delivery, Walt Disney theme park management/family entertainment, Toyota defect-free vehicles at low cost) Know what are the best indicators of a company's strategy. A company's actions in the marketplace and the statements of senior managers about the company's current business approaches, future plans, and efforts to strengthen its competitiveness and performance
Know what we mean by a work in progress when it comes to strategy (reactive versus proactive. Proactive actions to improve the company's financial performance and secure a competitive edge Typically, managers proactively modify this or that aspect of their strategy as new learning emerges about which pieces of the strategy are working well and which aren't, and as they hit upon new ideas for strategy improvement As-needed reactions to unanticipated developments and fresh market conditions See Figure 1.2 Know what is the relationship between a company's strategy and its business model. Business model: explains the rationale for why its business approach and strategy will be a moneymaker; absent the ability to deliver good profitability, the strategy is not viable and the survival of the business is in doubt A business model explains why its business approach and strategy will generate ample revenue to cover costs and capture a profit A company's business model zeros in on how and why the business will generate revenues sufficient to cover costs and produce attractive profits and return on investment Know what makes a strategy a winner. 1) How well does the strategy fit the company's situation?
2) Is the strategy helping the company achieve a sustainable competitive advantage? 3) Is the strategy resulting in better company performance? A winning strategy must fit the enterprise's external and internal situation, build sustainable competitive advantage, and improve company performance. Know what is the relationship between good strategy and good strategy execution and good management. Good strategy and good strategy execution are the most trustworthy signs of management The better conceived a company's strategy and the more competently it is executed, the more likely that the company will be a standout performer in the marketplace. Excellent execution of an excellent strategy is the best test of managerial excellence and the most reliable recipe for turning companies into standout performers.
Ch. 2 Know in detail the five steps in developing crafting, and implementing a Strategy. 1) Developing a strategic vision: describes the route a company intends to take in developing and strengthening its business; it lays out the company's strategic course in preparing for the future 2) Setting objectives: an organization's performance targets the results and outcomes management wants to achieve; they function as yardsticks for measuring how well the organization is doing 3) Crafting a strategy to achieve the objectives and vision 4) Implementing and executing the strategy 5) Monitoring developments, evaluating performance, and making corrective adjustments Phases 1-4 Revise as needed in light of actual performance, changing conditions, new opportunities, and new ideas Know what a vision statement is and how that differs from a mission statement. Vision statements ("where we are going") -- Strategic vision is about the company's future strategic course "the direction we are headed and what our future product/market/customer/technology focus will be" Mission statements ("who we are, what we do, and why we are here") posted on company annual reports or company web sites typically provide a brief overview of the company's present business purpose, and sometimes its geographic coverage or standing as a market leader; rarely addresses where the company is headed. Know what constitutes a good vision statement and how is it linked to values Company values: the beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company's business and pursuing its strategic vision and strategy At companies where the stated values are real rather than cosmetic, senior managers are careful to craft a vision, mission, and strategy that match established
values, and they reiterate how the value-based behavioral norms contribute to the company's business success If the company changes to a different vision or strategy, executives take care to explain how and why the core values to be relevant Key elements of a strategic vision are 1) To delineates management's aspirations for the business 2) To provides a panoramic view of "where we are going"3 3) To Charts a strategic path which Is distinctive and specific to a particular organization. 4) To capture the emotions of employees and steer them in a common direction 5)To challenge and stretch the targets beyond company's immediate reach. A strategic vision exists only as words and has no organizational impact unless and until it wins the commitment of company personnel and energizes them to act in ways that move the company along the intended strategic path! Know what we mean by Strategic Inflection points. Effective communication of a strategic vision down the line to lower-level managers and employees is as important of choosing a strategically sound vision. Strategic Inflection Points: when critical decisions have to be made about where to go from here and a major new directional path may have to be taken. A major new strategy may be needed. You must breakdown the resistance of the organization to the new vision to be successful. Sometimes you must change strategy because of a dramatic change in a company's environment. Responding quickly to unfolding changes in the marketplace lessons a company's chances of becoming trapped in a stagnant business or letting attractive new growth opportunities slip away. Intel's inflection points: Prior to mid-1980s Focus on memory chips Starting in mid-1980s Abandon memory chip business (due to lowercost Japanese companies taking over the market) and become preeminent supplier of microprocessors to PC industry, make PC central appliance in workplace and home, be undisputed leader in driving PC technology forward 1998 Shift focus from PC technology to becoming the preeminent building block supplier to Internet economy Know what is meant by setting objectives and what are the characteristics of good objectives. Setting objectives to convert the strategic vision into specific performance targets (ex: maximize profits, reduce costs, become more efficient, increase sales, etc...) Well-stated objectives are quantifiable, measurable, and contain a deadline for achievement Must be concrete and measurable serve as yardsticks for tracking a company's performance and progress a company that consistently meets or beats its
performance targets is generally a better overall than performer a company that frequently falls short of achieving its objectives. Know what we mean by a balanced score card and the relationship between financial & strategic objectives. Balanced scorecard addresses two very distinct types of performance yardsticks by which to measure objectives: financial and strategic. Financial and strategic objectives are outcomes that indicate a company is strengthening its marketing standing, competitive vitality, and future business prospects Improved strategic performance fosters better financial performance A company that pursues and achieves strategic outcomes that boost its competitiveness and strength in the marketplace is in much better position to improve its future financial performances Know what is meant by a Strategic Intent. A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective. Ex: can entail unseating the existing industry leader, becoming the dominant market share leader, delivering the best customer service of any company in the industry (or the world), or turning a new technology into products capable of changing the way people work and live. Know why Objectives are set top to bottom and who participates in setting them. 2 advantages 1) cohesion among the objectives and strategies of different parts of the organization; 2) helps unify internal efforts to move the company along the chosen strategic path Company objectives need to be broken down into performance targets for each of the organization's separate businesses, product lines, functional departments, and individual work units Company performance can't reach full potential unless each organizational unit sets and pursues performance targets that contribute directly to the desired companywide outcomes and results Ideal situation is a team effort in which each organizational unit strives to produce results in its area of responsibility that contribute to the achievement of the company's performance targets and strategic vision Know the difference between Corporate, Business, Functional, Operating strategies. Corporate strategies: A)Moves to achieve diversification, B) Acts to boost performance of individual businesses C) captures valuable cross-business synergies to provide 1 + 1 = 3 effects d) establishes investment priorities and steering corporate resources into the most attractive businesses. Business strategies: A) Initiates approaches to produce successful performance in a specific business, B) crafts competitive moves to build sustainable competitive advantage, c) develops competitively valuable competencies and capabilities, d) Unites strategic activities of functional areas and e) Gains approval of business strategies by corporate-level officers and directors Functional strategies: Sets the game plan for a strategically-relevant function, activity, or business process, B), detail how key activities will be
managed, C)provides support for business strategy and d) specifies how functional objectives are to be achieved Operational strategies: narrows strategic approaches to manage key operating units and strategically-relevant operating activities b)adds detail to business and functional strategies, and c)delegates responsibility to frontline managers Know that a Strategic plan consists of a strategic vision + objectives + strategy Its strategic vision and business mission + Its strategic and financial objectives + Its strategy = Strategic Plan.* A strategic plan lays out the company's future direction, performance targets and strategy. It is a WRITTEN plan that is circulated to all managers and select employees. Know what is involved in implementing and executing strategy Implementation is an operations-oriented activity aimed at performing core business activities in a strategy-supportive manner It is Tougher and more timeconsuming than crafting strategy. Its Key tasks include improving efficiency of strategy being executed and showing measurable progress in achieving targeted results. To implement the strategy successfully you must: Build a capable organization, allocate resources to strategy-critical activities, establish strategy-supportive policies, institute best practices and programs for continuous improvement, install information, communication, and operating systems , motivate people to pursue the target objectives, tie rewards to achievement of results, create a strategy-supportive corporate culture and, exert the leadership necessary to drive the process forward and keep improving Know what is involved in evaluating strategy Tasks of crafting and implementing the strategy are not a one-time exercise Customer needs and competitive conditions change New opportunities appear; technology advances; any number of other outside developments occur One or more aspects of executing the strategy may not be going well New managers with different ideas take over Organizational learning occurs All these trigger a need for corrective actions and adjustments on an as-needed basis Taking actions to adjust to the march of events tends to result in altering longterm direction and/or redefining the mission/vision, raising, lowering, or changing performance objectives, modifying the strategy, improving strategy execution Know the role and importance of the Board of Directors. It is to exercise strong oversight to ensure five tasks of strategic management are executed to benefit Shareholders or Stakeholders. Make sure executive actions are not only proper but also aligned with interests of stakeholders. They should Be inquiring critics and overseers who evaluate caliber of senior executives' strategy-making and strategy-executing skills.
They are to institute a compensation plan for top executives rewarding them for results that serve interests of stakeholders and shareholders. They oversee a company's financial accounting and reporting practices
Ch. 3 Know what is meant by the company's macro environment. Know the seven questions that define a company's industry and competitive environment. Question 1: What Are the Industry's Dominant Economic Features? Question 2: What Kinds of Competitive Forces Are Industry Members Facing, and How Strong Is Each Force? Question 3: What Factors Are Driving Industry Change and What Impacts Will They Have? Question 4: What Market Positions Do Rivals Occupy--Who Is Strongly Positioned and Who Is Not? Question 5: What Strategic Moves Are Rivals Likely to Make Next? Question 6: What Are the Key Factors for Future Competitive Success? Question 7: Does the Outlook for the Industry Present an Attractive Opportunity? What are some key elements that are looked at when determining the industry's dominant economic features? Market size and growth rate Number of rivals Scope of competitive rivalry(geographic Boundaries of the market) Buyer needs and requirements Degree of product differentiation Product innovation Supply/demand conditions Pace of technological change Vertical integration Economies of scale Learning and experience curve effects What are the five competitive forces that industry members face? suppliers buyers rival firms new entrants substitute product makers What are driving forces? What are some ways of discussing Rivals Position in the industry? How do you know what strategic moves are rivals likely to make?
Ch. 4
What are KSFs? Why is it important to know the outlook for the industry?
What is the starting point of evaluating a company's resources and competitive position? Know what we mean by SWOT and how that analysis is carried on. Know what is a resource strength, Know what is a competence, what is a core competence and a distinctive competence and why they are important. How do resource strengths and weaknesses relate to a balance sheet? Know the main formulas in profitability and liquidity which are current ratio (CA/CL)*, Acid Test or Quick Ratio(CA-inventory)/CL, Working Capital=CA-CL, ROA=NP /TA, Gross profit Margin= (Sales-CGS)/sales, Inventory turn over=CGS/inventory and Days of Inventory=Inventory/(CGS+365). Know what value chain analysis and activity based costing helps us in answering a question related to competitiveness of company's costs and profits. Know the difference between primary and support activities. Know what is Benchmarking . Know how you rate a company relative to its key rivals and how that relates to KSF. What kind of issues should high level mangers focus on?