PRELIMS - Corporate governance

Strategic management - Organizational Structure and Controls

What is Strategic Management? - Strategic Leadership
Strategic Management is a set of managerial decision - Strategic Entrepreneurship
and action that determines the long-run performance of Performance
a corporation. It includes environmental scanning ( both - Competitive Advantages
external and Internal), strategy formulation (strategic or - Above-average returns
long range planning), Strategy implementation, and
evaluation and control. The study of strategic The process involves analysis, strategy and
management therefore emphasizes the monitoring and performance.
evaluation of external opportunities and threats in lights
of a corporation’s strengths and weaknesses. The first step is the process to analyze its external
environment and Internal environment to determine
How to achieve Strategic competitiveness? its resources, capabilities and core-competencies -on
Strategic competitiveness is achieved when a firm which the strategy likely to be used.
successfully formulates and implements a value creating
strategy. With the information gained from external and Internal
analysis, the firm develop its vision and mission
What is strategy? and formulate one or more strategies.
A strategy is an integrated and coordinated set of
commitments and actions designed to exploit core To implement its strategies, the firm takes actions to
competencies and gain a competitive advantage. enact each strategy with intent of achieving strategic
competitiveness and above average returns.
When choosing a strategy, firm makes choices among
compete ting alternatives as the pathway for deciding Effective strategic actions that take place in the context
how they will pursue strategic competitiveness. In this of carefully integrated strategy formulation and
sense, the chosen strategy indicates what the firm will implementation efforts result in positive performance.
do as well as the firm will not do
This dynamic strategic management process must be
What is competitive advantage? maintained as ever-changing markets and competitive
A firm has competitive advantage when it implements a structures are coordinated with firms continuously
strategy that creates superior value for customers and evolving strategic inputs.
that competitors are unable to duplicate or find it too
costly to try to imitate. Next we will examine two models that firms use to
gather the information and knowledge required to
What is Above-average returns? choose and then effectively implement their strategies.
Above-average returns are returns in excess of what an The insights gained from these models also serve as the
investor expects to earn from other investments foundation for forming firms vision and mission.
with similar amount of risk.
What is Risk? The first model (industrial organization) I/O suggest that
Risk is an investors uncertainty about the economic external environment is the primary determinants of a
gains or losses that will result from a particular firms strategic actions. According to this model,
investment. identifying and then operating effectively in an attractive
- The most successful companies learn how to effectively industry or segment of an industry are the key to
manage risk. competitive success.
- Effectively managing risk reduces investors uncertainty
about the result of their investment. The second model (resourced based) suggest that a
- Returns are often measure in terms of accounting firms unique resources and capabilities are the critical
figures, such as returns on asset, returns of equity, or link to strategic competitiveness. Thus the first model is
return on sales. concerned primarily with the firms external environment,
What is an Average return? while the second model is concerned primarily with the
Average return equal to those an investor expect to earn firms internal organization.
form other investment with similar amount of risk.
Strategic Management Process The I/O Model of Above-average Returns
Strategic Management Process is the full set of 1. Study the external environment especially the
commitments, decisions and actions required for a firm industry environment
to achieve Strategic Competitiveness and earn above The external environment
average-returns. - The General environment
Three Stages of Strategic Management Process - The industry environment
- Analysis - The competitive environment
- The external environment 2. Locate industry with high potential for above
- The internal organization average returns
Strategy An attractive Industry
- Strategy Formulation - An industry whose structural characteristics
- Business level strategy suggest Above-average returns
- Competitive Rivalry and Competitive Dynamics 3. Identify the strategy called by the attractive
- Corporate level strategy industry to earn above-average returns
- Merger and acquisition strategies Strategy formulation
- International Strategy - Selection of a strategy linked with above
- Corporate Strategy average returns in particular industry
Strategy Implementation
4. Develop or acquire assets and skills needed to Strategy- Formulation and Implementation- Strategic
implement strategy actions taken to earn above average returns
Asset and Skills
- Assets and skulls required to implement a Superior returns- Earning above-average returns
chosen strategy
5. Use firms’ strengths to implement strategy Vision and Mission
Strategy Implementation
- Selection of strategic actions linked with After studying the internal and external environment of
effective implementation of a chosen strategy the organization, the firm has the information it
needs to form its mission and vision. Stakeholders learn
Superior Returns a great deal about the firm studying its mission
- Earning of Above-average returns and vision. Indeed, a key purpose of a vision and
Typically, the model suggest that firms can earn above mission statements is to inform stakeholders of what the
average returns by producing either standardized firm is, what it seeks to accomplish, and who it seeks to
goods or services at cost below those of competitors or serve.
by producing differentiated goods or services for
which customers are willing to pay a price premium. What is a vision?
A vision is a picture of what the firm wants to be and, in
Resource-based Model of Above Average-Returns broad terms, what it wants to ultimately achieve.
The resource-based model of above average returns
assumes that each organization is a collection of unique Vision statements articulates the ideal description of an
resources and capabilities. The uniqueness of its organization and gives shape to its intended future. In
resources and capabilities is the basis of affirms other words, a vision statement points the firm in the
strategy and its ability to earn above average returns. direction pf where it would like to be in
years to come.
What is Resources?
Resources are inputs into a firm’s production process, It is also important to recognize that vision statements
such as capital equipment, the skill of individual reflect firm’s values and aspirations and are intended to
employees, patents, finances, and talented managers. capture the hearth and mind of each employee and,
hopefully many of its stakeholders. A firm’s vision tends
Individual alone may not yield a competitive advantage. to be enduring while its mission can change with new
In fact, resources have a greater likelihood of being a environmental conditions. A vision statement tends to be
source of competitive advantage when they formed into relatively short and concise, making it easier to
capability. remember.

What is capability? What is a mission?

Capability is the set of resources to perform a task or an A mission specifies the business in which the firms
activity in an integrative manner. intend to compete and the customers it intend to serve.

What is core competencies? The firm’s mission is more concrete than its vision.
Core competencies are capabilities tat serve as a source However, similar to the vision, a mission should establish
of competitive advantage for a firm over time. a firm’s individuality and should be inspiring and relevant
to all stakeholders. Together the mission and vision
The resource-based model of Above average provide the foundation that firm needs to choose and
returns implement one or more strategies.
1. Identify the firms’ resources. Study its
strengths and weaknesses compared with those What is stakeholder?
of competitors. Stakeholder are individuals, groups, and organizations
Resources-Inputs into a firm’s production that can affect the firm’s vision and mission, are
process affected by the strategic outcomes achieved, and have
2. Determine the firms’ capabilities. What do the enforceable claims on the firm’s performance.
capabilities allow the firm to do better than its People who are affected by a firm’s performance and
competitors. who have claims on its performance.
Capability-Capacity of an integrated set of
resources to interactively perform a task or Classification of stakeholders
activity 1. Capital Market Stakeholders
3. Determine the potential of the firms’ - Shareholder
resources and capabilities in terms of a - Major Suppliers of Capital (e.g. banks)
competitive 2. Product Market stakeholders
advantage. - Primary customer
Competitive advantage- ability of a firm to - Suppliers
outperform its rivals - Host communities
4. Locate an attractive industry - Unions
An attractive industry- an industry with 3. Organizational Stakeholders
opportunities that can be exploited by the firms - Employees
resources - Managers
and capabilities What are strategic leaders?
5. Select a strategy that best allows the firms to Strategic leaders are people located in different areas
utilize its resources and capabilities relative to and levels of the firm using strategic management
opportunities in external environment process to select strategic actions that help the firm
achieve its vision and mission.
 COMPETITOR INTELLIGENCE
What is organizational culture?
Refers to the complex set of ideologies, symbols, and These refers to assets that can be observed and quantified.
TANGIBLE RESOURCES
core values that are shared throughout the firm and that
This markets in which the firms competitive advantages are
influence how the firm conducts business.
partially shielded from imitation and imitation is moderately
costly.
FAST CYCLE NARKET
MIDTERMS
It specifies actions a firms takes to gain a competitive Which of the following is odd man out?
advantage by selecting and managing a group of different TECHNOLOGICAL RESOURCES
business competing in different product markets.
CORPORATE LEVEL STRATEGIES This allows the firms to exploit opportunities or neutralize
threats in its external environment.
If a company or firm uses either a single or a dominant VALUABLE RESOURCES
business corporate-level diversification strategy, the firm is
pursuing? It is an integrated and coordinated set of commitments and
LOW LEVEL OF DIVERSIFICATION actions the firms uses to gain a competitive advantage by
exploiting core competencies in specific product market
Which of the following is not a value creating diversification? BUSINESS LEVEL STRATEGIES
TAX LAW
When selecting a business-level strategy the firm determines
This refers to the cost savings a firm creates by successfully WHO WILL BE SERVED WHAT NEEDS THOSE TARGET
sharing resources, capabilities or transferring one or more COSTUMERS HAVE HOW THOSE NEEDS BE SATISFIED
corporate level core competencies that were developed in one
of its businesses to another of its businesses. This dimension of the relationship is concerned with the firm's
ECONOMIES OF SCOPE access and connection to customers
REACH
These are complex sets of resources and capabilities that link
different businesses, primarily through managerial and This dimension of relationship is concerned with the depth and
technological knowledge, experience, and expertise. detail of the two-wayy flow of information between the firm
CORPORATE LEVEL CORE COMPETENCIES and the customer
RICHNESS
This exist when a firm is able to sell its products above the
existing competitive level or to reduce the cost of its primary The dimension of relationship is concerned with facilitating
and support activities below the competitive level, or both. useful interactions with customers
MARKET POWER AFFILIATION

It exists when two or more diversified firms simultaneously This is a process used to cluster people with similar needs into
compete in the same product areas or geographical markets. individual and identifiable group?
MULTIPOINT COMPETITION MARKET SEGMENTATION

It exists when a company produces its own inputs or its own Which of the following is odd man out? (END USE, PRODUCTS,
source of output distribution GEOGRAPHIC)
VERTICAL INTEGRATION DEMOGRAPHIC SEGMENT

This refers to cost savings realized through improved After the firm decides who it will serve, what should be the
allocations of financial resources bed fo investments inside or next step?
outside the firm. FIRM MUST IDENTIFY THE TARGETTED COSTUMER
FINANCIAL ECONOMIES GROUPS NEEDS THAT ITS GOODS OR SERVICES CAN
SATISFIES
It exists when the value created by business units working
together exceeds the value that those same units create It is an integrated set of actions taken to produce goods or
working independently services with features that are acceptable to customer at the
COMPETITION lowest cost relative to that of competitors.
COST ELADERSHIP STRATEGY
It refers to a return equal to those an investor expect to earn
form other investment with similar amount of risk It is an integrated set of actions taken to produce goods or
AVERAGE RETURNS services that customer perceived as being different in ways
that are important to them.
It is a full set of commitments, decisions and actions required DIFFERENTIATION STRATEGY
for a firm to achieve Strategic Competitiveness and earn above
average-returns It is an integrated set of actions taken to produce goods or
STRATEGIC MANAGEMENT services that serve the needs of a particular competitive
segment.
Which of the following is odd man out? FOCUS STRATEGY
CORPORATE GOVERNANCE
It involves engaging in primary value chain activities and
It includes the institutions and activities involved in creating support functions that allow this simultaneously pursue low
new knowledge and translating that knowledge into new cost and differentiation.
outputs, products, processes and materials INTEGRATED COST LEADERSHIP/ DIFFERENTIATION
TECHNOLOGICAL SEGMENT STRATEGY

Which of the following is odd man out? Which of the following does not belong to the group?
THREAT OF NEW ENTRANTS END USE SEGMENT

It is a set of data and information the firms gathers to better It is achieved when a company implements a strategy that
understand and anticipate competitors objectives, strategies, creates superior value for customers and that competitors are
assumptions and capabilities.
unable to duplicate or find it too costly to try to imitate A MOTIVATION
Above average returns
COMPETITIVE ADVANTAGE This relates to each firms resources and flexibility they provide
without available resources the firm is not able to attack the
This refers to returns in excess of what an investor expects to competitor or respond to its action.
earn from other investments with similar amount of risk. ABILITY
ABOVE AVERAGE RETURNS
The ongoing competitive action/response sequence between a
firm and a competitor affects he performance of both firms.
These are people located in different areas and levels of the Because of this, it is important for companies to carefully
firm using strategic management process to select strategic analyze and understand the competitive rivalry present in the
actions that help the firm achieve its vision and mission, markets in which they compete.
STRATEGIC LEADERS COMPETITOR RIVALRY

is a strategic or tactical action the firm takes to build or defend

This refers to the primary customers, suppliers and host its competitive advantages or improve its market position
community. COMPETITIVE ACTION
PRODUCT MARKET STAKE HOLDERS

It is the area in which organizations and interest groups It is 3 market-based moves at evolves a significant
compete for attention, resources and a voice in overseeing the commitment of organizational re difficult to implement and
body of laws, and regulations guiding interactions among reverse.
nations as well as between firms and various local STRATEGIC ACTION
governmental agencies.
LEGAL SEGMENT It is a market-based move that is taken to fine tune a strategy,
it involves fewer resources relatively easy to implement and
One reason these threats pose such threat is that they bring reverse.
additional production capacity. Use the demand for a good TACTICAL ACTION
service is increasing additional capacity hold consumers costs
down, resulting in less revenue and lower returns for In addition to market commonality, resource similarity, and the
competing firms. drivers of Awareness, motivation, and ability, other factors
THREATS OF NEW ENTRANTS affect the likelihood a competitor attack its competitors. This
refers to?
This denotes the extent to which a firm revenue or profits are LIKELIHOOD OF ATTACK
derived from particular market
COMPLEXITY It is a firm that takes an initial competitive action in order to
build or defend its competitive advan or to improve its market
These are the firms operating in the same market, offering position.
similar products and targeting similar FIRST MOVER
customers.
MARKET DEPENDENCE It is firm that responds to a competitive action a significant
amount of time after the first movers action and the second
is the ongoing set of competitive actions and competitive movers response.
responses that occur among firms as they maneuver for an LATE MOVER
advantageous market position.
COMPETITION RIVALRY This competitive speed of market in which the firms capabilities
that contribute to advantages aren't shielded from imitation
It's a set of competitive actions and responses affirms takes to and where imitation is often rapid and inexpensive.
build or defend its competitive advantage and to impose its FAST CYCLE MARKET
market position
COMPETITIVE BEHAVIOR Concerns the ongoing actions and response between the firms
and its direct competition for an advantageous market position,
Refer to all competitive behaviors that is, the total set of also concerns the ongoing actions and responses among all
actions and responses taken by all firms competing within a firms competing within a market for advantageous positions.
market. COMPETITIVE RIVALRY
COMPETITIVE DYNAMIC
The success of firms competitive action is affected by the
It's the first step the firm takes to be able to predict the extent likelihood that a competitor will respond to as well as by the
and nature of its rivalry with each competitor. type, the effectiveness of that response. In general a firm is
COMPETITOR ANALYSIS likely to respond to a competitor's action when?
ALL OF THE ABOVE
It is concerned with the number of market with which the firm
and a competitor are jointly involved and the degree of
importance of each individual markets to each
MARKET COMMONALITY

It is the extent to which the firm's tangible and intangible

resources are comparable to the competitors in terms of both
type and amount. umm A. Market commonality
DIFFERENTIATION STRATEGY

It is a prerequisite to any competitive actions or response

taken by a firm, refers to the extent to which competitors
recognize the degree of their mutual interdependence that
results from market commonality and resource similarity
AWARENESS

Concerns the firms incentive to take action or to respond to a

competitor's attack relates to perceived gains and losses.