MAN 4720 florida state univesity Notes2023
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Florida State University**We aren't endorsed by this school
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MAN 4720
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Management
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Jan 1, 2025
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MAN 4720: Strategic Management and Business PolicyChapter 1: Strategic Management and Strategic Competitiveness★Overview○Alibaba, Asia○Strategy: an integrated and coordinated set of commitments and actions designed to exploit the core competencies in the company and gain a competitive advantage.○Competitive Advantage: something that you can do in your company that other people can't do, sets you apart, hard time to imitate○Goal of companies is to have above average returns of profit○Competitive Landscape: fundamental nature of competition is changing in a number of the worlds industries, boundaries of industries are becoming blurred and difficult to define (telecommunications industry is leaving the competitive landscape adjustments that are occuring)○Global Economy: goods, services, people, skills, and ideas move rapidly across all the geographic boundaries, everyone is involved in one way or another ■As a result competition becomes more intense■This pressures companies to shorten product development ■Must be strategically competitive in domestic market first○Technological trends about altering competition:■The increasing rate of technological change and diffusion, information age●Perpetual Innovation: rapid and consistent replacement of current technologies by new technologies○Strategic Flexibility: set if capabilities that firms use to respond to various demands and opportunities that are found in uncertain environments (Starbucks)○Industrial Organization Model: explains that forces outside of your organization represent the dominant influences on the firms strategic actions, characteristics of and conditions present in the external environment determine appropriateness of strategies formulated and implemented in order for the firm to earn above average returns ■Choice of industries in which to compete has more influence that the decisions made by the first managers working at the firm, competitors tell what to do (Sams and Costco)■Based on:●External environment: general industry competitive advantage, imposed pressures and constraints on firms●Resources used are highly mobil●Organization decision makers assumed to be rational, profit maximizing behaviors○Resources Based Model: above average returns, internal perspective to explain that the firm's unique bundle/collection of internal resources and capabilities represent the foundation on which strategies should be built
■Resources: inputs into the firm's production process (capital equipment, employee skills, patents, brand names, finance, managers), can be tangible or intangible (Nike)■To improve above average returns:●Firms should identify internal resources and asses strengths and weaknesses, SWOT Analysis●Firms should identify the set of resources that provide the firm withthe capabilities that are unique to the firm and relative to competitors●Should determine the potential for their unique resources, determine how their capabilities and resources can be used to gain competitive advantage●Attain sustainable ○Vision Statement: picture of what the firm wants to be, want to achieve in the coming years, big picture, reflect companies values and aspiration, enduring, short, concise, input from stakeholders○Mission Statement: externally focused application of its vision, states firms unique purpose and scope of operation in product and market terms, never over 50 words, shouldn't mention profit, to be ethical○Stakeholders: individuals and groups who can affect and are affected by the strategic outcomes and who have an enforceable claim on a firm's performance■Capital market stakeholders■Product market stakeholders■Organizational stakeholders○Strategic Leaders: CEO or the person on the top is the primary organizational strategist in every organization★Introduction○Firms achieve strategic competitiveness by implementing value-creating strategy ○Strategy: integrated and coordinated set of commitments and actions designed toexploit the core competencies in the company and gain a competitive advantage ■Make choices among competing alternatives ○A firm has a competitive advantage when by implementing chosen strategy, it creates superior value for customers, competitors not able to imitate value, what sets you apart, not permanent○Above-average returns: returns in excess of what an investor expects to earn from other investments with similar amount of risk ■Risk: an investors uncertainty about the economic gains or losses that willresult from particular investment, reduce risk and reduce investor uncertainty ○Average returns: returns equal to those an investor expects to earn from other investments with similar amount of risk, inability to earn average returns results indecline and failure ○Strategic Management Process: full set of commitments, decision, and actions
firms take to achieve strategic competitiveness and earn above-average returns, involves analysis, strategy and performance (ASP model)○Competitive Landscape: fundamental nature of competition is changing in a number of the worlds industries, boundaries of industries are becoming blurred and difficult to define (telecommunications industry is leaving the competitive landscape adjustments that are occuring)■Firms must integrate digitalization: the process of converting something todigital form■Managers must adopt a new mind-set that values: flexibility, speed, innovation, integration, and the challenges from changing conditions■Hypercompetition: competitors engage in intensive rivalry, markets change quickly/often, entry arrears are low●Makes it difficult to maintain competitive advantage●Rapidly escalating competition based on: price-quality positioning,creating new know-how and establish first-mover advantage, competition to protect/invade established product and/or geographic markets●Primary drivers of hypercompetition: the emergence of a global economy and rapid technological change ■The Global Economy: goods, services, people, skills, and ideas move freely across geographic borders, expands and complicates a forms competitive environment ●Globalization: increasing economic interdependence among countries and their organizations as reflected in the flow of products, financial capital, and knowledge across country borders,has led to higher performance standards with respect to: ○Quality, cost, productivity, product introduction time, operational efficiency ○Risks: “Liability of foreignness”, time required to learn, entering too many too quickly■Technology and Technological Changes ●Technology related trends and conditions that affect today's firms:○Technology diffusion (speed at which new technologies become available to firms when firms choose to adopt them) and disruptive technologies (destroy value of an existing technology and create new markets)○The information age: data and information are vital to firmsefforts to: understand customer needs, implement strategies that satisfy needs, strategies to satisfy interests of all other stakeholders, information technology-derived innovations as opportunity rather than threat○Increasing knowledge intensity, knowledge consists of information, intelligence and expertise, basis of technology,acquired through experience, observation and inference,
necessary to create innovations ●Strategic Flexibility: set of capabilities that firms use to respond to various demands and opportunities that are found in dynamic and uncertain competitive environments (Starbucks), not easy to build,inertia, continuous learning○Industrial Organization (I/O) Model of Above Average Returns: explains that forces outside of your organization represent the dominant influences on the firms strategic actions, characteristics of and conditions present in the external environment determine appropriateness of strategies formulated and implemented in order for the firm to earn above average returns, profitability potential■Determined by: economies of scale, barriers to market entry, diversification, product differentiation, degree of concentration of firms on the industry, market frictions■Assumptions:●External environment imposes pressures and constraints that determine strategies●Control similar strategically relevant resources and pursue similar strategies ●High mobile, resource differences will be short-lived ●Organizational decision makers are rational individuals, firms best interest, profit maximizing■Five forces model of competition is an analytical tool used to find the industry that is most attractive, suggests that:●An industry's profitability is a function of interactions among: suppliers, buyers, competitive rivalry among firms currently in industry, product substitutes and potential entrants to industry●Firms can earn above average returns by producing: standardizedproducts at costs below those of competitors (cost leadership strategy) or differentiated products for which customers are willing to pay a price premium (differentiation strategy)○Resources Based Model of Above Average Returns: internal perspective to explain that the firm's unique bundle/collection of internal resources and capabilities represent the foundation on which strategies should be built, uniqueness■Resources: inputs into the firm's production process (capital equipment, employee skills, patents, brand names, finance, managers), can be tangible or intangible (Nike), classified into three categories: ●Physical capital●Human capital●Organizational capital■Capability: capacity for a set of resources to perform a task or activity in an integrative manner■Core competencies: capabilities that serve as a source of competitive
advantage for a firm over its rivals ■Assumptions: ●Firm performance based on unique resources and capabilities rather than structural characteris●Resources and capabilities are not highly mobile across firms●On basis of competitive advantage ■Resources and capabilities potential to be foundation for a competitive advantage when they are: valuable, rare, costly to imitate, non-substitutable■To improve above average returns:●Firms should identify internal resources and asses strengths and weaknesses, SWOT Analysis●Firms should identify the set of resources that provide the firm withthe capabilities that are unique to the firm and relative to competitors●Should determine the potential for their unique resources, determine how their capabilities and resources can be used to gain competitive advantage●Attain sustainable ○Vision and Mission statements inform stakeholders of: what the firm is, what it seeks to accomplish, who it seeks to serve, provide foundation to choose and implement strategies ■Vision: a picture of what the firm wants to be and what it wants to achieve■Vision statement: ideal description of an organization, intended future, short and concise■An effective vision challenges people, developed by CEO, employees, suppliers and customers, and is consistent with decision/actions ■Mission: specifies the businesses in which the firm intends to coete and the customers it intended to serve, more concrete than vision, establish individuality, inspiring and relevant, more directly with product markets and customers, effective with string sense of ethics ○Stakeholders: individuals, groups and organizations that can affect the firm's vision and mission, affected by the strategic outcomes achieved, enforceable claims on firms performance, different degrees of ability to influence ■Classifications: ●Capital market stakeholders: expect firm to preserve and enhancetheir wealth, return correlated with degree of risk: low-risk = lower return, high-risk = higher returns ●Product market stakeholders: customer seek reliable product at lowest price, suppliers seek loyal customers willing to pay highest sustainable price, host communities (government laws and regulations), unions○Polycentric: multiple levels of power●Organizational stakeholders: employees, leaders
○Strategic Leaders: located in different areas and levels of the firm using strategic management process to select actions that help firm achieve vision and fulfill mission, are decisive, committed to nurturing those around them, committed to helping firm create value for all stakeholder groups■Organizational Culture: complex set of ideologies, symbols, and core values shared and influence how the firm conducts business, social energy drives/fails to drive the organization■Effective strategic leaders, prerequisites: hard work, thorough analyses, willingness to be brutally honest, wanted to achieve success, tenacity ■They must: have strong strategic orientation while embracing change, be innovative, promote innovation, global mind-setChapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis ★Overview○McDonalds, uses information from the general environment to determine strategy○External environment is constantly changing, by understanding it helps build knowledge and information to use to:■Help build capabilities and core competencies ■Buffer the firm from negative environmental impacts■Pursue opportunities to better serve their stakeholders needs★Three Components to External Environment:○General environment: demographics, political/legal, economic, technological, sociocultural, global, sustainable physical environment■Segments of the General Environment:●Demographic Segment: population size, age (rapidly aging, availability of labor), structure, geographic distribution, ethnix mix (consumer needs and labor force composition), income distribution (purchasing power), look at other nations (India, China, US Indonesia, Pakistan)●Economic Segment: nature and direction of the economy●Political/Legal Segment: organizations compete for attention, resources, a voice●Sociocultural Segment: attitudes and values form the cornerstone of a society, drive demographic, economic, and tech conditions
and changes, relatively stable●Technological Segment: new knowledge, potential substitutes in current use and new technology ●Global Segments: new global markets, globalfocusing: focus on niche markets ●Sustainable Physical Environment Segment: sustainable development ○Industry environment: directly influence a firm and its competitive actions, indusy:group of firms producing products that are close substitutes, industry analysis, Porter’s 5 Forces of Competition Model: (stronger the forces, lower profit potential)■Threat of new entrance into the industry: barriers to entry and retaliation expected from current industry participants●Economies of scale, differentiation, switching costs, capital requirements, gov policy, access■Intensity to rivalry: based on price, service, innovation ■Power of buyers: to reduce costs buyers bargain for: higher quality, greater levels of service, lower prices ■Power of the suppliers: can increase prices or reduce the quality of their products■Threat of product substitutes○Competitor environment: an analysis of general environment forces on environmental trends and their implications, competitor analysis: looks at factors and conditions influencing industry's profitability potential: objectives, current strategy, assumptions, strengths and weaknesses ■Influence firms vision, mission, choice of strategies, competitive actions and responses it takes to implement strategies ■Competitor Intelligence: data/information firms gather to understand and anticipate competitors objectives, strategies, assumptions and capabilities●Complementors: sell complementary goods/services that are compatible with focal firms good/service (Intel and Microsoft)■Ethical Considerations:●Legal and ethical practices include obtaining publicly available information, unethical include blackmail, trespassing, eavesdropping, stealing★External Environmental Analysis: ○Scanning: identify early signals of environmental changes and trends, internet ○Monitoring: detecting meaning through ongoing observations of changes and trends, understand reputation○Forecasting: develop feasible projections of anticipated outcomes based on monitored changes and trends, challenging○Assessing: utilize above in determining timing and importance of changes and trends for firms strategies and management ★Identifying opportunities (condition in general environment that if exploited helps
company reach strategic competitiveness) and threats (condition in general environmentmay hinder companies efforts to have strategic competitiveness)★Strategic groups: firms emphasizing similar strategic dimensions and using similar strategy, competitive rivalry is greeted within a strategic group then between groups○Pricing decisions○Product quality○Distribution channels ★Opportunity and Threats (external), Strengths and Weaknesses (internal) Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages★Introduction:○Firms achieve strategic competitiveness and above-average returns by acquiring,bundling and leveraging resources to take opportunities in external environment to create value for customers○Competitors eventually duplicate benefits of any firm’s value-creating strategy, allcompetitive advantages have limited life○Competitive advantage’s sustainability, function of:■Rate of core competence obsolescence because of environment changes■Availability of substitutes for the core competence■Liability of the core competence○Challenge is managing current core competencies while developing new ones ■Only when firms do this can they: achieve strategic competitiveness, earnabove-average returns, and remain ahead of competitors in both short and long term★Analyzing the Internal Organization ○Matching what a firm can do (resources, capabilities, core competencies) to whatit might do (opportunities, threats, in external env) yields insights for the firm to choose its strategies○The Context of Internal Analysis■Global mind-set: ability to analyze, understand, and manage an internal organization in ways not dependant on assumptions of a single country, culture, or context○Creating Value■Value: measured by a products performance characteristics and it attributes for which customers are willing to pay■Create value by innovatively building and leveraging resources to form capabilities and core competencies■Affects its choice of business-level strategy and organizational structure ■Most important sources of competitive advantage: core competencies andproduct-market positions○The Challenge of Analyzing the Internal Organization■Strategic decisions about internal organization: are nonroutine, have
ethical implications, and significantly influence ability to earn above-average returns■Decisions about assets: involves identifying, developing, deploying, and protecting resources, capabilities and core competencies ■Firm can improve by studying its mistakes ■Three Conditions affect managers as they analyze the internal organization and make decisions about Resources:●Uncertainty: about the characteristics of a firm's general and industry environments and customer needs ●Complexity: from the interrelationships among conditions shaping a firm●Intraorganizational Conflict: may exist among managers making decisions and those affected by the decisions■Judgment: capability of making successful decisions when no obvious correct model/rul is available or when relevant data are unreliable or incomplete●When exercising judgment, decision makers: mut be aware of cognitive biases (overconfidence) and often take intelligent risks■Strategic Leaders: ability to examine firms resources, capabilities, and core competencies and make effective choices about use ★Resources, Capabilities, and Core Competencies○Foundation of competitive advantage○Resources bundled to create organizational capabilities○Capabilities are the source of firms core competencies○Resources■Broad in scope, cover spectrum of individual, social and organizational phenomena, by themselves do not allow firm to create value■Tangible Resources: assets that can be observed and quantified, hard to leverage (derive additional business/value from), primary categories: ●Financial: capacity to borrow, ability to generate funds through internal operations●Organization: formal reporting structures●Physical: plant and equipment, attractiveness of location, distribution facilities, product inventory●Technological: availability of technology-related resources (copyrights, patents, trademarks, trade secrets)■Intangible Resources: assets that are rooted deeply in firms history, accumulate over time and are relatively difficult for competitors to analyzeand imitate, less visible, difficult for competitors to understand, purchase imitate or substitute, foundational for capabilities, Can be leveraged, primary categories:●Human: knowledge, trust, skills, abilities to collaborate with others●Innovation: idea, scientific capabilities, capacity to innovate●Reputational: brand name, perceptions of product quality,
durability and reliability, positive reputation with stakeholders (suppliers and customer)○Capabilities■Created by combining individual tangible and intangible resources ■Based on developing, carrying, and exchanging information and knowledge through firms human capital■Developed in specific functional areas: ●Distribution: effective use of logistics management techniques (Walmart)●Human Resources: motivating, empowering and retaining employees (Microsoft)●Management Information Systems: effective and efficient control of inventories, point-of-purchase data collection methods (Walmart)●Marketing: effective promotion of brand-name products, effective customer service, innovative merchandising (Procter & Gamble, Ralph Lauren, Nordstrom, Crate & Barrel) ●Management: ability to envision the future of clothing (Zara)●Manufacturing: design and production skills yielding reliable products, product and design quality, miniaturization of components and products (Sony)●Research and Development: innovative technology, elevator control solutions, rapid transformation of technology into new products and process, digital technology○Core Competencies ■Capabilities that serve as a source of competitive advantage for a firm over its rivals ■Emerge over time through an organizational process of accumulating andlearning how to deploy different resources and capabilities■Activities performed especially well compared to competitors, adds unique value to goods/services ■Tools to help firm identify core competencies:●Four Criteria of Sustainable Competitive Advantage: (every core competence is a capability, but not every capability is a core competence) Capabilities that are: ○Valuable: allow firm to exploit opportunities or neutralize threats in external environment ○Rare: few, if any, competitors possess○Costly to Imitate: other firms cannot easily develop■Historical: unique and valuable organizational culture or brand name■Ambiguous cause: causes and uses are unclear■Social complexity: interpersonal relationships, trust and friendship among managers, suppliers and
customers○Nonsubstitutable: do not have strategic equivalents ●Value Chain Analysis: allows firms to understand the parts of its operations that create value and those that don't ○The value chain is a template that firms use to analyze their cost position and identify multiple means that can be used to facilitate implementation of a chosen strategy○Value Chain Activities: activities or tasks the firm completesin order to produce products and sell, distribute, and service in a way that creates value for customers○Support Functions: activities or tasks firm completes in order to support the work being done to produce, sell, distribute, and service products firm is producing ★Outsourcing: the purchase of a value-creating activity or a support function activity from an external supplier○Firms engaging in effective outsourcing: increases flexibility, mitigate risk, reduce capital investments ○Firms should use outsourcing only for activities where they: cannot create value, are at substantial disadvantage compared to competitors ○Concerns Associated with Outsourcing:■Potential loss in firms ability to innovate■Loss of jobs within the focal firm ○Offshoring: outsourcing to a foreign supplier★Competencies, Strengths, Weaknesses, and Strategic Decisions○By analyzing the internal organization, firms identify strengths and weaknesses as reflected by resources, capabilities, and core competencies○The “right” resources are those with potential to be formed into core competencies○The ability of a core competence to be permanent competitive advantage can’t be assumed, all have potential to become core rigidities that generate inertia andstifle innovationChapter 4: Business-Level Strategy★Introduction:○By selecting an implement one or more strategies, firms seek to: gain strategic competitiveness and earn above-average returns ○Business-Level Strategy: an integrated and coordinated set of commitments and actions firm uses to gain competitive advantage by exploiting core competencies in specific product market (core strategy: day to day basis in chosen market, every firm must develop and implement)○Customers are the foundation of successful business-level strategy, firm determines: will be served, needs those target customers have that it whowhatwill satisfy, and those needs will be satisfiedhow
★Customers: Their Relationship with Business-Level Strategies○Strategic competitiveness is achieved when firm satisfies a group of customers by using its competitive advantage as the basis for competing in individual product markets○Most successful companies find new ways to satisfy current customers and meetneeds of new customers ○Effectively Managing Relationships with Customers: ■Firm strengthen relationships with customers by delivering superior value to them, results in increased customer satisfaction, customer satisfaction has positive relationship with profitability○Reach, Richness, and Affiliation■Reach: firms access and connection to customers■Richness: depth and detail of the two-way flow of information between firm and customer■Affiliation: facilitating useful interactions with customers ○Who: Determining the Customers to Serve■Who their target customer is by dividing customers into groups based on difference in customer needs■Market Segmentation: process of dividing customers into groups based on their needs, cluster customers with similar needs into individual and identifiable groups●Customer markets:○Demographic factors (age, income, sex)○Socioeconomic factors (social class, stage in the family lifecycle)○Geographic factors (cultural, regional, national differences)○Psychological factors (lifestyle, personality traits)○Consumption patterns (heavy, moderate, light users)○Perceptual factors (benefit segmentation, perceptual mapping)●Industrial markets:○End-use segments (identified by Standard Industrial Classification (SIC) code)○Product segments (defined by boundaries between countries or by regional differences within them)○Geographic buying factor segments (cut across product market and geography segments)○Customer size segments○What: Determining Which Customer Needs to Satisfy:■Having clos interactions with current and potential customers helps a firm identify the target customer group’s current and future needs■A product's benefits and features ■Successful forms learn how to deliver customers what they ant, when they want it, and recognize that customers needs change (Amazon)
○How: Determining Core Competencies Necessary to Satisfy Customer Needs■How to use core competencies in order to implement value-creating strategies and develop products that can satisfy its target customers needs■Core Competencies: resources and capabilities that serve as a source of competitive advantage for the firm over its rivals●Customers expectations can be met and exceeded across time byfirms with the capacity to:○Improve consistently○Innovate○Upgrade the competencies★The Purpose of a Business-Level Strategy○To create differences between the firms position and those of its competitors, decide if it intends to perform or performactivities differentlydifferent activities★Business Models and Their Relationship with Business-Level Strategies ○A business model: describes what a firm does to create, deliver, and capture value for stakeholders, “framework” ○Business-level strategy is the “path” the firm will follow to gain a competitive advantage by exploiting its core competencies in specific product market ○Types of business models:■Franchise model: licenses it trademarks and the processes it follow to create and deliver a product to franchises (McDonald’s)■Freemium model: provides basic product to customer for free and earns revenues and profits by selling a premium version of the service (Dropbox)■Advertising model: for a fee, firm provides advertisers with high-quality access to its target customers (Google)■Subscription model: firm offers a product to customers on a regular basis such as once-per-month, once-per-year, upon demand (Netflix)■Peer-to-Peer model: business matches those wanting a particular service with those providing that service (Airbnb)★Types of Business-Level Strategy: exploit a competitive advantage (either lowest cost or distinctiveness) as a basis for how it will create value with a particular competitive scope (broad market or narrow market), neither is superior○Effectiveness of each is contingent on the and in external opportunitiesthreatsenvironment and and derived from resource portfoliostrengthsweaknesses
○Cost Leadership Strategy: integrated set of actions taken to produce products with features that are acceptable to customers at the lowest cost relative to that of competitors (Walmart)■Firms commonly sell standardized goods/services but with competitive levels of differentiation to most typical customers ■Process innovations: newly designed production and distribution methodsand techniques, allow to operate more efficiently, critical to efforts to use cost leadership strategy ■Forces of Competition●Rivalry with Existing Competitors: rivals hesitate to compete on price variable, factors that influence the degree of rivalry when implementing cost leadership strategy: ○Organizational size○Resources possessed by rivals○Firms dependance on particular market○Location○Prior competitive interactions between firms○Firms reach, richness, and affiliation with customers●Bargaining Power of Buyers (Customers): although customers canforce a cost leader to reduce prices, prices will not be reduced below the level at which the next-most-efficient industry competitorcan earn average returns ●Bargaining Power of Suppliers: Cost leader operates with marginsgreater than margins earned by competitors, impossible for cost leader to absorb suppliers price increases, to reduce costs, firms may outsource an entire functions to a single/small number of suppliers ●Potential Entrants: enhanced profit margins creates an entry barrier to potential competitors, new entrants must be willing to accept less than average returns until they gain the experience required to approach the cost leaders efficiency ●Product Substitutes: when faced with substitutes, cost leader has
more flexibility that its competitors, to retain customer reduce products price■Competitive Risk of the Cost Leadership Strategy: ●A loss of competitive advantage to newer technologies●Failure to detect changes in customer needs●Ability to imitate the cost leaders competitive advantage through own distinct strategic actions ○Differentiation Strategy: integrated set of actions taken to produce products (at acceptable cost) that customers perceive as being different in ways that are important to them (Mercedes mass producing luxury vehicles)■Product innovations: new product/service development that solves the customers problem and benefits customer and company, critical to successor differentiation strategy ■Firms can produce distinctive products for customers who value differentiated features more than low cost, firms are able to charge premium prices ■Firms must consistently upgrade differentiated features that customers value and create new valuable features without significant cost increases ■The less similarity to competitors offering, the more buffered from competition with rivals ■Use value chain to determine if they are able to link activities required to create value using differentiation strategy ■Competitive forces:●Rivalry with Existing Competitors: customers tend to be loyal and less sensitive to price increases, relationship between brand loyalty and price sensitivity insulates a firm from competitive rivalry●Bargaining Power of Buyers (Customers): purchasers accept priceincreases as long as they continue to perceive the products satisfytheir distinctive needs at acceptable cost ●Bargaining Power of Suppliers: higher costs from suppliers can be: absorbed by high margins earned, and passed on to customers through price increases●Potential Entrants: substantial barriers to potential entrants are created by: customer loyalty and the need to overcome the uniqueness of a differentiated product●Product Substitutes: companies selling brand-name products to loyal customers face a lower probability of customers switching to substitutes ■Competitive Risk of Differentiation Strategy: ●Customer groups decision that a differentiated products unique features are no longer worth a premium price●The inability of a differentiated product to create the type of value for customers willing to pay premium price●Ability of competitors to provide similar features at a lower cost
●Failure to meet customers expectations through its efforts to implement differentiation strategy ○Focus Strategies: integrated set of actions taken to produce products that serve the needs of a particular segment of customers■Segments a firm may choose to serve:●Particular buyer group (senior citizens)●Different segment of a product line (products for professional painters)●Different geographic market (northern or southern Italy)■Focus strategy is successful when firm serves a segment well whose unique needs are so specialized that broad-based competitors choose not to serve that segment, and create value for a segment that exceeds the value created by industry-wide competitors ■Focused cost leadership strategy and Focused differentiation strategy■Competitive Risk of Focus Strategies:●Competitors ability to use its core competencies to “out-focus” the focuser by serving an even more narrowly defined market segment●Industry-wide companies decision that the market segment servedis attractive and worthy of competitive pursuit●Reduction in differences of the needs between customers in a narrow market segment and the industry-wide market over time ○Integrated Cost Leadership/Differentiation Strategy: firm engaging simultaneously in primary value chain activities and support functions to achieve low cost position with some product differentiation ■Adapt quickly to new technologies and rapid changes in external environment ■Developing two sources of competitive advantage (cost and differentiation) increases the number of primary value chain activities and support functions in which a firm becomes competent. ■Flexibility is required, sources of flexibility used to implement strategy:●Flexible Manufacturing Systems (FMS): computer controlled process to produce variety of products in moderate, flexible quantities with minimum manual intervention, eliminate the “low cost vs product variety” trade-off○Change quickly and easily from making one product to making another ○Increased effectiveness in respond=ding to changes in customer needs while retaining low-cost advantages and consistent product quality○Reduce lot size needed to manufacture product○Have greater capacity to serve the unique needs of a narrow competitive scope●Information Networks: link companies with their: suppliers,
distributors, and customers (Customer relationship management (CRM) is an information-network process that firms use ○Information networks help firm satisfy customer expectations in terms of: product quality and delivery speed●Total Quality Management Systems: implementation of appropriate tools/techniques to provide products/services to customer with best quality ○Firms develop and use TQM systems to: increase customer satisfaction, cut costs, and reduce the amount of time required to introduce innovative products to the marketplace ○An effective TQM system help firm develop flexibility to identify opportunities to increase its products differentiated features and reduce costs■Competitive Risks of the Integrated Cost Leadership/Differentiation Strategy: ●Firm might produce products that do not offer sufficient value in terms of low cost or differentiation, company becomes “stuck in the middle” and compete at a disadvantage and are unable to earn more than average returnsChapter 5: Competitive Rivalry and Competitive Dynamics★Introduction:○Competitors: firms operating in the same market, offering similar products, and targeting similar customers○Competitive rivalry: ongoing set of competitive actions and competitive responses among firms as they maneuver for an advantageous market position, the outcomes of competitive rivalry influence the firms:■Ability to develop and then sustain competitive advantages, ■Level (average, below average, above average) of financial returns○Competitive behavior: competitive actions and responses to build or defend its competitive advantages and improve its market position○Multimarket competition: firms compete against each other in several product or geographic markets○Competitive dynamics: total set of competitive actions and responses taken by firms competing within a market ○A strategies success is a function of firms initial competitive actions, how well firmanticipates competitors response to them, and how well firm anticipates and responds to its competitors initial actions ○Competitive rivalry has a dominant influence on business-level strategy ★A Model of Competitive Rivalry ○Competitive rivalry evolves from the pattern of actions and responses as ones
firns competitive actions have noticeable effects on competitors, eliciting competitive response from them ■Pattern suggests that firms are mutually exclusive, competitors action andresponses affect them, marketplace success is a function of both individual strategies and the consequences of their use ★Competitor Analysis: first step taken to be able to predict competitors actions and response, firms can use competitor analysis to predict behavior, helps avoid competitive blind spots (unaware of competitors objectives, strategies, assumptions, capabilities)○Used to understand the competitive environment by studying competitors:■Future objectives■Current strategies■Assumptions■Capabilities○Firms study: market commonality and resource similarity, the greater commonality and similarity the more firms acknowledge that they are direct competitors○Market Commonality: number of markets with which the firm and a competitor are jointly involved and the dree of importance of individual markets to each ○Resource Similarity: extent to which firms tangible and intangible resources compare favorably to competitors in terms of type and amount■Tend to have similar strengths and weaknesses■Use similar strategies in light of strengths to pursue similar opportunities in external environment ★Drivers of Competitive Behavior:○Market commonality and resource similarity shapes a firms:■Awareness: extent to which competitors recognize the degree of their mutual interdependence, greatest when highly similar resources ■Motivation: incentive to take action or to respond to a competitor's attack■Ability: quality of the resources available to firm to attack and respond○Resource Dissimilarity also influences the competitive actions and response firms choose to take ★Competitive Rivalry: ongoing competitive actions and responses between a firm and competitor as they maneuver for an advantageous market position, affects the performance of both companies ○Strategic and Tactical Actions■Strategic action or response: market-based move that involves a significant commitment of organization resources, difficult to implement andrevers ■Tactical action or response: market-based move to fine-tune a strategy, involve fewer resources, relatively easy to implement and reverse■Competitive action: strategic or tactical action to build or defend its competitive advantage or improve its market position■Competitive response: strategic or tactical action to counter the effects of competitors competitive action
★Likelihood of Attack:○First-mover benefits: ■First mover: firm that takes an initial competitive action to build or defend competitive advantages or improve position, emphasize research and development for innovation and value■Tend to be aggressive, willing to experiment with innovation, and take higher yet reasonable levels of risk■Slack: the buffer provided by actual or obtainable resources not in use currently and that exceed the minimum resources needed to produce a given level of organizational output ■Second-mover: firm that responds to the first movers action, typically through imitation■Late mover: firms that responds to action a significant amount of time after the first movers action and second movers response, achieve less success, require considerable time to understand how to create value ○Organization size:■Small firms: more likely to launch competitive actions, tend to launch more quickly, have capacity to be nimble and flexible competitors, rely on speed and surprise to defend, variety of competitive actions ■Large firms: greater amount of slack resources that allow them to initiate a larger number of competitive actions and strategic actions○Quality: exists when firms products meet or exceed customers expectations■A base denominator for: competing successfully in the global economy and achieving competitive parity at a minimum ■Necessary but insufficient condition for achieving advantage ■Product Quality Dimensions: ●Performance: operating characteristics●Features: special characteristics●Flexibility: meeting specifications●Durability: amount of use before performance deteriorates ●Conformance: match with standards●Serviceability: easy and speed of repair●Aesthetics: looks and feels●Perceived quality: subjective assessment of characteristics (image)■Service Quality Dimensions:●Timelessness: promised period of time●Courtesy: performed cheerfully●Consistency: similar experience each time●Convenience: accessibility to customers●Completeness: fully services as required●Accuracy: performed correctly each time★Likelihood of Response:○Firms likely to respond to competitor action when: action leads to better use of
capabilities to develop stronger advantage or improvement, action damages ability to use core competencies, market position becomes harder to defend○Firms evaluate factors to predict how competitor is likely to respond to actions:■Type of competitive action: tactical responses exceed strategic responsesthey take, response is difficult to implement and reverse, time needed candelay response to action■Actors reputation: actor (firm taking action or a response), reputation (positive or negative attribute ascribed by one rival to another based on past behavior■Market dependance: extent to which firm derives its revenues or profits from a particular market, competitors with high dependence are likely to reposed strongly to attacks threatening position ★Competitive Dynamics: ongoing actions and responses among all firms competing withina market for advantageous positions, differ in slow-, fast-, ans standard- cycle markets ○Slow-cycle markets: competitors lack ability to imitate firms advantages that commonly last for long periods of time, imitation would be costly, advantages gradually erodes over time (lawsuits over patents/copyright infringement are more common and intense)○Fast-cycle market: competitors can imitate capabilities that contribute to advantage and imitation is often rapid and inexpensive, advantages not sustainable, reverse engineering used to gain access to knowledge○Standard-cycle markets: some competitors may be able to imitate advantages and imitation is moderately costly, competition share is intense because:■Large volumes, the size of mass markets, and the need to develop scale economies Chapter 6: Corporate-Level Strategy★Corporate-level Strategy: actions a firm takes to gain competitive advantage by selectingand managing a group of different businesses competing in different product markets○Means to grow revenues and profits, focused on diversification, expected to help earn above-average returns by creating value, concerned with what markets and businesses firm should compete and how corporate headquarters should
manage those businesses ○Product diversification: how managers buy, create and sell different businesses to match skills and strengths with opportunities presented to the firm, successful when reduces variability in forms profitability as earnings are generated from different businesses, flexibility to shift investments to markets where greatest return is possible ★Levels of Diversification:○Single-business diversification strategy: low levels, 95% or more of sales revenue from core business area ○Dominant-business: low levels, 70-95% of total revenue generated within a singlebusiness area○Related diversification strategy: generates more than 30% of revenue outside a dominant business, moderate levels■Related constrained: shares resources and activities across ot businesses, links use similar sourcing, throughput and outbound processes■Related linked: transferring knowledge and core competencies between its businesses, portfolio has few links○Unrelated: high levels, no relationship between businesses, make no effort to share activities or transfer core competencies between or among their businesses, firms using this are conglomerates★Reasons for Diversification: increase firms value and overall performance (value createdwhen increase revenue or reduce cost), have neutral effects, and reduce a firm's value ○Value-Creating Diversification: ■Economies of scope (related): cost savings●Sharing activities: sharing a primary activity (inventory delivery systems) or a support activity (purchasing practices), costly, may create unequal benefits and can lead to fewer managerial risk-taking behaviors (operational relatedness)●Transferring core competencies: through managerial and technological knowledge, experience and expertise (corporate relatedness)■Market power (related): when firm can sell above existing competitive level or reduce costs of activities●Blocking competitors through multipoint competition: two or more
diversified firms compete in same areas/geographical markets●Vertical integration: company produced its own inputs (backward integration) or its own source of output distribution (forward integration), has limitations ■Financial economies (unrelated): cost savings●Efficient internal capital allocation: investors take equity positions with high expected future cash-flow values●Business/asset restructuring: buying assets at low costs, restructuring, and selling at price that exceeds costs in external market ○Value-Neutral Diversification: different incentives to diversify, quality of resources,incentives: ■Antitrust regulation, tax laws (external)■Low performance, uncertain future cash flows (diversification as defensive strategy), risk reduction for firm, synergy (internal)■Tangible resource and intangible resources: degree of valuable, rare, difficult to imitate, non-substitutable ○Value-Reducing Diversification: as firms size increases, so does executive compensation and social status■Diversifying managerial employment risk■Increasing managerial compensation Chapter 7: Merger and Acquisition Strategies★The Popularity of Merger and Acquisition Strategies: central role in restructuring of US businesses during 80s and 90s, create value, challenging to effectively implement ○Determining the target worth of a firm is difficult, difficulty increases likelihood a firm will pay a premium to acquire target★Merger: strategy where two firms agree to integrate their operations on a relatively coequal basis★Acquisition: strategy where one firm buys a controlling, or 100% interest in another firm with intent of making acquired firm a subsidiary business within its portfolio (are more common than mergers and takeovers)○Management of acquired firm reports to management of acquiring firm ○Reasons for Acquisitions:■Increase Market Power:●Market power exists when firm can sell goods/services above competitive levels and costs of primary support activities are lowerthan competitors’, Derived from the size of firm, quality of resources, and share of the market●Buying a competitor, a supplier, a distributor, or a business in related industry so that core competence can be used to gain competitive advantage in the acquiring firms primary market ●To increase market power firms use: (all subject to regulatory
review by the government)○Horizontal acquisitions: acquisition of a company competing in the same industry, exploit cost-bases and revenue-based synergies, result in higher performance when firms have similar characteristics○Vertical acquisitions: firm acquiring a supplier or distributor of one or more of its products, firm controls additional partsof the value chain, increases market power ○Related acquisitions: acquiring a firm in a highly related industry, create value through synergy that can be generated by integrating resources and capabilities ■Overcome Entry Barriers to new markets/regions: ●Barriers to entry are factors associated with a market/firms in it that increase the expense and difficulty of new firms trying to entera particular market●Cross-Border Acquisitions: between companies with headquartersin different countries, difficult to implement because of obstacles and differences in cultures ■Avoid Costs of Developing New Products and increase Speed of new market entries:●Internal product development perceived as a high-risk activity●Allows firms to gain access to new products and current products that are new to it●Acquisitions provide more predictable returns and faster market entry■Reduce Risk of entering new business■Become more Diversified■Reshape Competitive Scope by developing different portfolio of businesses:●Lessen their product and/or market dependencies on specific products or markets shapes competitive scope ■Enhance Learning as the foundation for developing New Capabilities: ●Firms can broaden their knowledge base and reduce inertia●Acquire diverse talent through cross-border acquisitions●Seek to acquire companies with different but related and complementary capabilities to build knowledge base ○Problems in Achieving Acquisition Success:■Difficulty of effectively integrating firms: integration process considered strongest determinant of whether a merger or an acquisition is successful,is difficult, generate uncertainty and resistance because of cultural clashes and organizational politics ●Need to meld two or more unique corporate cultures, link different financial and information control systems, build effective working relationships, determine leadership structure and those who will fill
it for the integrated firm■Incorrectly evaluating value of target:●Due Diligence: process where a potential acquirer evaluates a target firm for acquisition, work with intermediaries (large investment banks) to facilitate efforts, should○Evaluate accuracy of financial position of target○Evaluate accounting standards used by target○Examine quality of strategic fit between companies○Examine ability of acquiring firm to integrate target to realize potential gains from deal ●Financing for intended transaction, differences in cultures, tax consequences of transaction, actions that would be necessary to meld two workforces ■Creating debt loads that preclude adequate long-term investments:●Large or extraordinary debt can result from○Bidding wars○Paying a large premium: influenced by: Hubris, Escalation of commitment to complete a particular transaction, and self-interest●Junk bonds: financing options where risky acquisitions are financed with money (debt) that provides a larger potential return to lender (bondholders)○Used less frequently, commonly called high-yield bonds, unsecured obligations not tied to specific asset for collateral, contain high and volatile interest rates, potentially expose companies to greater financial risk■Overestimating potential for synergy●Synergy: exists when the value created by units working together exceed the value that those could create independently●Synergy created by:○Efficiencies derived from economies of scale○Efficiencies derived from economies of scope○Sharing resources (human capital and knowledge) across businesses in newly created firms portfolio●Private Synergy: created when combining and integrating the acquiring and acquired firms assets yield capabilities and core competencies that couldn't be developed with another company○Possible when firms assets are compel=mentary in unique ways○Difficult to create○Difficult for competitors to understand and imitate○Affected by direct transaction costs (legal fees, charges to conduct due diligence) and indirect transaction costs (time spend evaluating target and negotiating the acquisition)
■Creating a firm that is too diversified●Overdiversification can negatively affect firm's overall performance■Creating internal environment where managers devote increasing amounts of their time and energy to analyzing and completing the acquisition●Find appropriate degree of involvement ■Developing a combined firm that is too large, extensive use of bureaucratic rather than strategic controls●Larger firm size can increase complexity of managerial challenge and create diseconomies of scope●Bureaucratic controls are formalized supervisory and behavioral rules and policies designed to ensure consistency of decisions and actions across units ○Effective Acquisitions: ■Complementary resources, foundation for developing new capabilities ■Friendly, facilitating integration of resources■Thorough due-diligence process■Considerable slack in the form of cash or debt capacity ■Low level of debt, selling off portions or some poorly performing units■Experience in terms of adapting to change■R&D and innovation are emphasized in new firm ★Takeover: special type of acquisition where target firm does not solicit the acquiring firmsbid, unfriendly acquisitions ★Restructuring: firm changes its set of businesses or its financial structure, focus on fewerproduct and markets○Strategies: ■Downsizing: reduction in number of employees and sometimes number ofoperating units, adjust firm size, not necessarily a sign of decline (unintentional), intentional strategy■Downscoping: divestiture, spin-off, or some other means of eliminating businesses that are unrelated to core businesses, more positive effect than downsizing, refocus■Leveraged buyouts (LBO): party (private equity firm) buys all of firms assets in order to take the firm private, correct mistakes, types:●Management buyouts (MBOs) most successful, clear incentives●Employee buyouts (EBOs)●Whole-firm buyoutsChapter 8: International Strategy★Identifying International Opportunities○International Strategy: firm sells its goods/services outside its domestic market ○Incentives to Use: opportunities to extend products life cycle, gain access to critical raw materials, integrate firm’s operations on global scale or better serve
customers in other countries, meet increasing demand○3 Basic Benefits of International Strategy:■Increased Market Size: establish stronger positions outside domestic market, larger international markets: offer high potential returns, pose lessrisk, and have strong science base■Economies of Scale and Learning: expanding number of markets in whichthey compete, exploit core competencies through resource and knowledge sharing■Location Advantages: can help reduce costs, easier access to: lower labor costs, enbergy, natural resources critical supplies, and customers ●The degree of benefit a firm can capture through location advantage is affected by: manufacturing and distribution costs, thenature of international customers needs, and cultural and formal institutions (law and regulation)★International Strategies○Firms choose to use one or both basic types of strategy:■Business-level International Strategy, firms select from among the genericstrategies of: Cost leadership, Differentiation, Focused cost leadership, Focused differentiation, Integrated cost leadership/differentiation ●Firms must first develop domestic-market strategies, research suggest there are 4 determinants of national advantage:○Factors of Production: inputs necessary for firm to competein any industry (land, labor, natural resources, capital, infrastructure(transportation, delivery, communication systems))○Related and Supporting Industries:○Demand Conditions: characterized by the nature and size of customers needs in home market for the products of firms competing in the industry ○Patterns of firm strategy, structure, adn rivalry ■Corporate-level International Strategy:●Based partially in firms business-level strategy, focuses on scope of operations through geographic diversification, required when firm operates in multiple industries, guided by headquarters unit●3 strategies: vary in the need for global integration, and the need for local responsiveness:○Multidomestic: strategic and operating decisions are decentralized to strategic business unit in individual countries or regions, each unit opportunity to tailor products to local market■Focuses on competition within each country in which firm competes■Most appropriate when differences between markets they serve and customers in them is
significant ■Expands firms local market share, bc firm focuses attention on local clienteles needs ■Results in less knowledge sharing for corporation as a whole, decentralization■Does not allow economies of scale to develop and thus can be more costly ○Global: firms home office determines the strategies business units are to use in each country or region, firms seeks to develop economies of scale and assume customers throughout world have similar needs■Assumes more standardization of products across country boundaries■Offers greater opportunities to take innovations developed at corporate level and apply them to other markets ■Most effective when differences between markets and customers firm serves are insignificant ■Requires efficient operations in order to be implemented successfully○Transnational: firm seeks to achieve global efficiency and local responsiveness■Integrates multidomestic and global strategies ■Requires “flexible coordination”: building a shared vision and individual commitment through integrated network in order to be implemented■Is difficult to use because of conflicting goals■Can produce higher performance than multidomestic or global strategies ■Is becoming increasingly necessary to successfully compete in international markets★Environmental Trends○2 important trends influencing a firm choice of international strategies (particularlyinternational corporate strategies):■Liability of Foreignness: set of costs associated with various issues firms face when entering foreign markets including: ●Unfamiliar operating environments●Economic, administrative and cultural differences●The challenges of coordination over distances, 4 types of distances:○Cultural○Administrative○Geographic○Economic
■Regionalization: concentrate strategie on regions (European Union, Asia, Latin America) rather than on individual country markets, Benefits: ●Allows firms to marshal its resources to compete effectively rather than spread limited resources across multiple country-specific markets●Focuses on particular region allies form to better understand cultures, leal and social norms, and other factors●Markets may be more ismlar, allow coordination and sharing of resources ★Choice of International Entry Mode○Firms can use one or more of the 5 entry modes to enter international markets: (choice of entry can affect degree of success form achieves)■Exporting: (high cost, low control) firm send products it produces, initial mode used for many firms, popular for small businesses, requires no foregin manufacturing expertise, avoid expenses, can have significant cots, made easier due to internet ■Licensing: (low cost, low risk, little control, low returns) agreement formedallows foregin company to purchase the right to manufacture and sell product within host country's market. Licenced paid royalty, licensee takesrisk and make monetary investments in manufacturing, marketing and distributing products, least costly diversification, attractive to new smaller firms, obtain larger market and faster returns■Strategic Alliances: (shared costs, shared resources, shared risk, problemof interaction) firm collaborating with another company in a different setting in order to enter one or more international markets, popular, allowsa firm to connect with an experienced partner already in market,●Failure caused by: Incompatible partners, conflict between partners, and difficulty in managing●Establishing trust affected by: initial condition of relationship, negotiation process, interactions, external events, cultures, relationship between governments■Acquisitions (cross-border): (quick access to new markets, high costs, complex negotiations, problems merging with domestic operations) firm from one country acquired a stake in or purchases all of a firm located in another country, quickest means of entering market, require debt financing to compete■New Wholly Owned Subsidiaries: (complex to create, often costly, time consuming, high risk, maximum control, potential above-average returns) Greenfield Venture: firms invests directly in another country or market by establishing a new wholly owned subsidiary, greatest potential to contribute to strategic competitiveness, usse more when firm relies significantly on quality of capital-intensive manufacturing facilities, may require hiring host-country national or consultant○Dynamics of Mode Entry: to enter global market, firm selects entry mode that is
best suited to its situation■Decision regarding which entry mode to use is primarily the result of●Industries competitive condition●Countries situation and government policies●Firms unique set of resources, capabilities, and core competencies ★Risk in an International Environment○2 major Categories of Risk firms need to understand and address when diversifying geographically through international strategies are:■Political Risks: denote the probability of disruption of operations of multinational enterprises by political forces/events, whether they occur in host countries, home countries, or result from changes in the internationalenvironment ●Possible disruptions include: ○Uncertainty created by government regulation○The existence of many possibly conflicting legal authorities○Corruption○The potential nationalization of private sectors●Political analysis examines potential sources and factors of non-commercial disruptions of foregin investments and operations■Economic Risks: fundamental weaknesses in country or regions economywith potential to cause adverse effects on firm efforts to successfully implement strategies ●Risks include:○Perceived security risk of a foregin firm acquiring companies that have key natural resources or firms that may be considered strategic with regard to intellectual property○Terrorism○Differences and fluctuations in value of currencies ★Strategic Competitiveness Outcomes○Degree to which forms achieve strategic competitiveness through international strategies is expanded or increased when they successfully implement an international diversification strategy○International Diversification Strategy: firm expands the sales of its goods or service across borders of global regions and countries into potentially large number of geographic locations or markets○Diversification and Returns
■Factors that contribute to the positive effects of international diversification:●Private versus government ownership●Potential economies of scale and experience●Location advantages●Increased market size●The opportunity to stabilize returns ○Enhanced Innovation■International diversification facilitates innovation in a firm because it: ●Provides a larger market to gain greater and faster returns from investments in innovation●Exposes firm to new products and processes, integrate knowledgeinto operations, allow further innovation to be developed●Can generate the resources necessary to sustain a large-scale R&D program ★The Challenges of Internal Strategies○Complexity of Managing International Strategies, strategy may become more difficult to manage due to:■The growth in the firms size■Greater operational complexity■Different cultures and institutional practices (those associated with governmental agencies) that are part of the countries in which the firm competes ○Limits to International Expansions, some constrain ability to manage internationalexpansion effectively■Management problems are exacerbated by:●Trade barriers●Logistical costs●Cultural diversity●Access to raw materials●Differences in employee skill level●Differences in host countries governmental policies and practicesChapter 9: Cooperative Strategy★Cooperative Strategy: firms collaborate to achieve a shared objective, to create value forcustomer that it likely could not create by itself, create competitive advantages, outperform rivals, and earn above-average returns★Strategic Alliances as a Primary Type of Cooperative Strategy○Strategic Alliance: cooperative strategy where firms combine some of their resources to create CA, firms jointly develop, sell and service goods/services, leverage existing resources, alliance success:■Actively solving problems■Being trustworthy
■Consistently pursuing ways to combine partners resources to create value ○3 Types of Major Strategic Alliances:■Joint Venture: strategic alliance where 2 or more firms create legally independent company to share resources to create CA●Partners who own equal percentages and contribute equally to ventures operations●Formed to improve ability to compete in uncertain competitive environments ●Can be affecting in establishing long-term relationships and transferring tacit knowledge between partners (can't be codified)■Equity Strategic Alliance: 2 more more firms own different percentages of a company that they have formed by combining some resources to createCA ●Ensure they have control over assets that they can commit to the alliance, intellectual capital■Nonequity Strategic Alliance: 2 or more firms develop a contractual relationship to share some resources to create CA ●Less formal, demand fewer partner commitments than joint ventures and equity, do not foster intimate relationship between partners●Unsuitable for complex projects when success depends on transfer of tacit knowledge between partners ●Outsourcing commonly through nonequity strategic alliances ○Reasons Firms Develop Strategic Alliances: ■Create value they couldn't generate by acting independently and entering markets more rapidly■Most companies lack the full set of resources needed to pursue all identified opportunities and reach objectives on their own ■Vary based on market condition:●Slow-cycle: gain access to restricted market, establish franchise innew market, maintain stability (standards)●Fast-cycle: speed up development of new goods/services, speed up new market entry, maintain market leadership, form industry technology standard, share risky research and development expenses, overcome uncertainty ●Standard-cycle: gain market power (reduce industry overcapacity),gain access to complementary resources, establish better economies of scale, overcome trade barriers, meet competitive challenges from other competitors, pool resources for very large capital projects, learn new business techniques ★Business-Level Cooperative Strategy○Business-Level Cooperative Strategy: firms combine some resources to create CA by competing in 1 or more product markets
○4 strategies used to improve performance in individual product markets:■Complementary Strategic Alliance: firms share some resources in complementary ways to create CA, 2 dominant types:●Vertical: firms share some resources from different stages of the value chain to create CA (greatest probability of creating sustainable CA)●Horizontal: firms share some resources from the same stage/stages of the value chain to create CA (difficult to maintain)■Competition Response Strategy: formed to respond to competitors actions, especially strategic actions■Uncertainty-Reducing Strategy: used to hedge against the risks created by the conditions of uncertain competitive environment (new product markets) (lowest probability of creating sustainable CA)■Competition-Reducing Strategy: used to avoid excessive competition while firm marshals its resources to improve strategic competitiveness●Collusion often used to reduce competition, often an illegal cooperative strategy, 2 types of collusive strategies:○Explicit Collusion: 2 or more firms negotiate directly to jointly agree about amount to produce and prices of what is produced, illegal unless sections by gov policies, increasing globalization led to fewer gov sanctioned○Tacit Collusion: several firms in industry indirectly coordinate production and pricing decision by observing each others competitive actions and responses■Mutual Forbearance: tacit collusion firms do not take competitive actions against rivals they meet in multiple markets★Corporate-Level Cooperative Strategy○Corporate-Level Cooperative Strategy: firm collaborates with 1 or more companies to expand its operations■Attractive when firms seek to diversify into markets in which host nations gov prevents mergers and acquisitions and because they can be used as a “test” to determine if partners benefit from a future merger or acquisitionbetween them■Compared to mergers/acquisitions corporate-level strategic alliance require fewer resource commitments and permit greater flexibility in termsof efforts to diversify partners operations ○Most Commonly Used Corporate-Level Strategy are:■Diversifying Alliances: firms share some resources to engage in product and/or geographic diversification, managing diversity gained through alliances has fewer financial costs, often require managerial expertise ■Synergistic Alliances: firms share some resources to create economies of scope, (similar to horizontal complementary) create synergy across multiple functions or multiple businesses between partner firms
■Franchising: a firm (franchisor) use a franchise as a contractual relationship to describe and control the sharing of resources with its partners (franchisee), alternative to mergers/acquisitions, attractive●Firm that already has successful product/service (franchisor) licenses its trademark and methods of doing business to other businesses (franchisee) in exchange for an initial franchise fee and ongoing royalty rate ●Used in fragmented industries (hotels/motels and retailing), no firms has dominant market share ●Partners work closely together ●Core companies brand name ○Compared with business-level cooperative strategies, corporate-level: broader in scope, more complex, more challenging, more costly to use ○Successful alliance experiences are internalized○Manage in ways that are valuable, rare, imperfectly imitable, and non substitutable ★International Cooperative Strategy○Cross-Border Strategic Alliance: firms with headquarters in different countries decide to combine some resources to create CA, in one or more areas (development, production) partly with intent to create value in markets throughoutthe world that neither from could create operating independently ■Increasing in number, not as risky as mergers/acquisitions, can be complex, can be difficult to mange■Key reason: performance superiority of firms competing in markets outside their domestic market, and gov restrictions on firms efforts to growthrough mergers/acquisitions■Riskier than domestic because: differences in companies and cultures and frequent difficulty in building trust ★Network Cooperative Strategy: several firms agree to form multiple partnerships to achieve shared objectives, primary benefit to gain access to its partners other partnerships○Alliance Network: set of strategic alliance partnerships that firms develop, stable or dynamic, vary by industry characteristics ■In mature industries: stable alliance networks used to extend CA into new areas■In rapidly changing environments: dynamic alliance network used as tool of innovation★Competitive Risks with Cooperative Strategies: ○Firm may act in a way that its partner thinks is opportunistic, when formal contracts fail to prevent them or an alliance is based on false perception of partner trustworthiness○Firm misrepresents the resources it can bring to the partnership, when partners contribution is based on some of its intangible assets ○Firm may fail to make available to its partners the resources that it committed,
when firm form an international cooperative strategy, different cultures/languagesmay cause misrepresentations of contractual terms or trust-based expectations ○Firms may make investments that are specific to the alliance while its partner does not, puts firm making investments at relative disadvantage ★Managing Cooperative Strategies ○Those responsible to managing forms cooperative strategies should take the actions to: coordinate activities, categorize knowledge learned from previous experiences, make certain in the hands of the right people at the right time, and learn how to manage both tangible and intangible assets ○2 primary approaches use to manage cooperative strategies;■Cost Minimization: firm develops formal contracts with partners that specify: how strategy is monitored and how partner behavior is to be controlled ■Opportunity Maximization: firm develops less formal contracts with fewer constraints on partners behaviors, partners explore how their resources can be shred in multiple value-creating ways ○Trust is an increasingly important aspect of successful cooperative strategies ■Trust: belief that a firm will not do anything to exploit its partners vulnerability when of it has the opportunity ●Collaborative/Relational Advantage Chapter 10: Corporate Governance★Corporate Governance: set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organization○Is an increasingly important part of the strategic management process, concerned with identifying ways to ensure that decisions: are made effectively and facilitate a firm's efforts to achieve SC○Means to establish and maintain harmony between firms owners and its top-level managers○Effective governance that aligns managers’ decisions with shareholders’ interests can help producea CA for the firm, 3 internal mechanisms are used in modern corporation:■Ownership concentration (represented by types of shareholder and their different incentives to monitor managers)■The board of directors■Executive compensation ★Separation of Ownership and Managerial Control○Ownership is separated from control in the modern corporation (except in a number of small firms and family-owned firms)○primary objective of firms activities is to increase profit and thereby the owners’ (shareholders’)
financial gains○Allows shareholder to purchase stock which entitles them to income (residual returns) from the firm's operations after paying expenses, this right requires shareholders to take a risk that expenses may exceed revenues ○Agency Relationships: when one party delegates decision-making responsibility to a second party for compensation■Owners (principals) hire managers (agents) to make decisions that maximize firm’s value■Problems: they can have different interest and goals, may lead to Managerial Opportunism: seeking of self-interest with guile (cunning or deceit), prevent maximization of wealth○Product Diversification as an Example of an Agency Problem: could result in principals incurring costs to control their agents’ behavior, can create 2 benefits■Top-level managers can increase their compensation: increased size of firm, positively related to executive compensation ■Managerial Employment Risk: risk of job loss, loss of compensation, and loss of managerialreputation, can be reduced, increased diversification reduces managerial employment risk,less vulnerable to reduction in demand■Free Cash-Flow: cash remaining after firm has invested in all projects that have potential net present value within current business, source of another potential agency problem●Stockholders may prefer that free cash flow be distributed to them as dividends or stock buybacks■Principals and managers seek different optimal levels of diversification, managers prefer higher level of diversification○Agency Costs and Governance Mechanisms■Agency Costs: sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals because governance mechanisms cannot guarantee total compliance by agent ■The effects of governance mechanisms are influenced by how weak or strong they are ■Corporate governance mechanisms have received greater scrutiny due to:●The Sarbane-Oxley Act (SOX) of 2002●The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) of 2010★Ownership Concentration: defined by the number of large-block shareholders and the total percentage of thefirm’s shares they own
○Large-Block Shareholders: own at least 5 percent of a company’s issued shares, increasingly active in their demands, the number of them has declined in recent years (institutional owners have replaced)○Ownership concentration influences decisions made about the strategies a firm will use and the value created by their use, diffuse ownership produces weak monitoring and control of managerial decisions○Institutional Owners: financial institutions (mutual funds, pension funds) that control large-block shareholders positions, powerful force in corporate America, can significantly influence firm’s choice of strategies and strategic decisions ★Board of Directors: group of elected individuals whose primary responsibility is to act in the owner’s best interests by formally monitoring and controlling firm’s top-level managers○generally fit into one of these 3 groups:■Insiders: firm’s CEO and other top-level managers, dominate board of directors ■Related Outsiders: not involved with the firm’s day-to-day operations but has relationship with the company■Outsiders: independent of the firm in terms of day-to-day operations and other relationships, having large number can create problems ○Enhancing the Effectiveness of the Board○Executive Compensation: governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentives (stock awards and options), challengingfor firms implementing international strategies ○The Effectiveness of Executive Compensation, it’s complicated, number of potential drawbacks★Market for Corporate Control: external governance mechanism that is active when a firm’s internal governance mechanisms fail○Ensures that ineffective and/or opportunistic top-level managers are disciplined ○Investors sometimes use the market for corporate control to take ownership position in firms that are performing well○imperfect governance mechanism○Managerial Defense Tactics: used generally self-serving in nature ■Hostile Takeover: acquisition of target company by a firm that is accomplished not by coming to an agreement but by going directly to company’s shareholders or fighting to replace management in order get acquisition approved ■Defense Strategy:
●Capital Structure Change●Corporate Charter Amendment●Golden Parachute●Greenmail: the repurchase of the target firm's shares of stock that were obtainedby the acquiring firm at a premium in exchange for an agreement that the acquirer will no longer target the company for takeover●Litigation●Poison Pill●Standstill★International Corporate Governance○Globalization in trade, investments, and equity markets is stimulating an increase in the intensity of efforts to: improve corporate governance and potentially reduce variation in regions’ and nations’governance systems○Germany and Japan■Concentration of ownership is an important means to corporate governance in Germany, banks occupied center of the German corporate governance system ■Significant amount of cross-shareholdings, make takeovers more difficult ■German two-tiered system has supported and critics ■Attitude toward governance in Japan are affected by the concepts of:●Obligation●Family: company considered family, families command the attention and allegiance of parties throughout corporations○A Keiretsu (groups of firms tied together by cross-shareholdings) is more than an economic concept, it is family too
●Consensus: calls for the expenditure of significant amounts of energy to win the hearts and minds of people whenever possible as opposed to issuing edicts, valued even when it results in a slow and cumbersome decision-making process ■Banks have an important role as corporate governance mechanisms in large public firms■Increased privatization of businesses and the development of equity markets, government has done much to improve corporate governance ★Governance Mechanisms and Ethical Behavior○Effective governance mechanisms ensure that the interests of all stakeholders are served, strategiccompetitiveness results when firms are governed in ways that permit at least minimal satisfaction of :■Capital Market Stakeholders (shareholders)■Product Market Stakeholders (customers and suppliers)■Organizational Stakeholders (managerial and non-managerial employees)○The most effective board of directors set boundaries for their firms business ethics and values Chapter 11: Organizational Structure and Controls★Organizational Structure and Controls○Performance decline when firm strategy is not matched with appropriate structure and controls ○Organizational Structure: specifies the firm’s formal reporting relationships, procedures, controls, and authority and decision-making process (specifies the functions to be completed for firm to implement strategy)■Structure determines and specifies: ●The decisions that are to be made●The work that is to be completed by everyone within an organization as a result of those decisions ■Help firm cope with environmental uncertainty, implement strategy as means of outperforming competitors■Provide stability to implement strategies and maintain current CA while providing flexibility to develop advantages in the future ●Structural Stability: provides capacity firm requires to consistently and predictably manage daily routines ●Structural Flexibility: make possible identifying opportunities and allocate resources to pursue them as way of being prepared to succeed in the future
■Modifications of current strategy or selection of new strategy call for changes to its organizational structure ●Organizational inertia inhibits efforts to change structure, structural change often induced by actions from stakeholders who are no longer willing to tolerate firms performance ○Organizational Controls: guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable ■Difficult to successfully exploit CA without effective organizational controls ■2 types of organizational controls:●Strategic Controls: subjective criteria intended to verify use of appropriate strategies for the condition in external environment and companies CAs, examinefit between what firm might do (external: opportunities) with what it can do (internal: resources, capabilities core competencies)●Financial Controls: objective criteria used to measure firms performance against previously established quantitative standards (previous outcomes, competitors performance, industry average), examples include: ROI (return on investment), ROA (return on assets), economic value added■Relative use of controls varies by type of strategy●Financial controls emphasized by companies using: cost leadership diversificationstrategy (activities or capabilities are not shared), or an unrelated diversification strategy (activities or capabilities are not shared)●Strategic controls emphasized by companies using: the differentiation strategy ora related diversification strategy■Effectiveness determined using a “balanced” combination of strategic and financial controls★Relationships between Strategy and Structure ○Strategy and structure have a reciprocal relationship, structure flows from or follows selection of firm’s strategy, structure can influence current strategic actions as well as choices about future strategies, the effect of strategy on structure is stronger than the effect of structure on strategy ○Matching each strategy with a structure that provides:■Stability needed to use current CAs■Flexibility required to develop future advantages ★Evolutionary Patterns of Strategy and Organizational Structure ○Sales growth creates coordination and control problems existing structure cannot efficiently
handle, firms choose among 3 major types of organizational structures: ■Simple Structure: owner-manager makes all major decisions and monitors all activities, staff serve as extension of managers supervisory authority, characteristics: ●Informal relationships●Few rules●Limited task specialization ●Unsophisticated information systems■Functional Structure: chief executive officer and limited corporate staff, functional line managers in dominant organizational areas (production, accounting, marketing, R&D, engineering, HR)●Allows functional specialization, active sharing of knowledge ●Can negatively affect communication and coordination among those representingdifferent functions ●Supports implementing business-level strategies and some corporate-level strategies (single or dominant business with low levels of diversification)■Multidivisional (M-form) Structure: corporate office and operating division each division representing a separate business or profit center in which top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers●3 major benefits:○Enables officers to more accurately monitor performance of each business, simplified the problem of control○Facilitates comparisons between divisions, improve resource allocation○Stimulated angers of poorly performing divisions to improve performance ●Increases likelihood that decisions made by managers heading individual units will be in stakeholders best interests●Widely adopted structure○Matches between Business-Level Strategies and Functional Structure■Different uses of 3 important structural characteristics:●Specialization: concerned with the type and number of jobs required to complete work●Centralization: degree to which decision-making authority is retained at higher managerial levels●Formalization: degree to which formal rules and procedures govern work
■Cost leadership form of functional structure characterized by:●Simple reporting relationships●Few layers in decision-making and authority structure ●Centralized corporate staff●Strong focus on process improvements through manufacturing rather than development of new products, emphasize product R&D●Low-cost culture●Centralized decision making●Highly specialized jobs●Division of work into homogeneous subgroups●Highly formalized rules and procedures■Differentiation form of functional structure characterized by:●Complex and flexible reporting relationships●Frequent cross-functional product development teams●Strong focus on marketing and product R&D rather than manufacturing and process R&D●Development-oriented culture and flatter structure●Decentralized decision-making responsibility and authority ●Low specialization of jobs●Few formal rules and procedures ■Cost leadership/differentiation form of functional structure characterized by: (Integrated cost leadership/differentiation strategy: products create value because of relatively low cost and reasonable sources of differentiation, used frequently in global economy, challenging because of different value chain and support activities)●Decision making patterns partially centralized and partially decentralized ●Semi-specialized jobs●Rules and procedures that call for some formal and some informal job behavior ●Measure of flexibility to emphasize one or the other set of functions at any given time○Matches between Corporate-Level Strategies and Multidivisional Structure:■A firm's continuing success leads to product or market diversification or both, corporate-level strategies have different degrees of product and market diversification ■Cooperative form: M-form, horizontal integration used to bring about interdivisional cooperation, sharing resources and activities across businesses to develop economies of
scope■Centralization, standardization and formalization ■Matrix Organization: dual structure combining functional specialization and business product or project specialization, may evolve in forms implementing related constrained strategy■Strategic Business Unit form: (M-form), 3 levels:●Corporate Headquarters●Strategic Business Units (SBUs)●SBU Divisions■Competitive form: (M-form), complete independence among the firms divisions that compete for corporate resources●Characterized by lack of:○Sharing common corporate strengths○Integrating mechanisms ●3 Benefits from internal competition:○Creates flexibility○Challenges status quo and inertia○Motivates effort in that the challenge of competing against internal peers can be as great as competing against rivals ○Matches between International Strategies and Worldwide Structure■Important for long-term success in today's virtually borderless global economy ■Worldwide geographic area structure: emphasizes national interests and facilitates firms efforts to satisfy local differences ■Key challenge associated with using multidomestic strategy/worldwide geographic area structure is the inability to create global efficiencies ●Disadvantages: difficulties coordinating decisions and actions across country borders, and inability to quickly respond to local needs and preferences ■Global Strategy: firm offers standardized products across country markets■Combination Structure: drawing characteristics and mechanisms from both the worldwidegeographic area structure and the worldwide product divisional structure ●Implemented through 2 possible combination structures:○Global matrix structure: brings together local market and product expertise into teams that develop and respond to global marketplace, flexibility in designing products in response to customer needs
○Hybrid global design: has limitations, employee in position of being accountable to more than one manager, loyalty issues, complex and vague corporate reporting relationships, difficult and time-consuming toreceive approval for major decisions●Must be simultaneously:○Centralized and decentralized○Integrated and non-integrated○Formalized and non-formalized ○Matching between Cooperative Strategies and Network Structures:■Network Strategy: exists when partners from strategic alliances to improve performance of alliance network itself through cooperative endeavors ●Strategic Network: group of firms that has been formed to create value by participating in multiple cooperative arrangements, source of CA for its members■Strategic Center Firm: at the core of the strategic network, one around which networks cooperative relationships revolve, engages in 4 primary tasks:●Strategic Outsourcing●Competencies●Technology●Race to Lean★Implementing Business-Level Cooperative Strategies○2 types of business-level complementary alliances:■Vertical: competencies in different stages of value chain, cooperatively integrate their different but complementary skills■Horizontal: formed to combine competencies to create value in same stage of value chain, used less often and less successful than vertical alliances ○Strategic center firm is obvious in vertical complementary strategic alliance, not always obvious in horizontal complementary alliance ★Implementing Corporate-Level Cooperative Strategies ○Used to reduce costs and facilitate product and market diversification, potential to create synergy ★Implementing International Cooperative Strategies○Differences among countries’ regulatory environments increase challenge of: managing international network and verifying that at a minimum a network operations comply with all legal requirements ○Distributed Strategic Networks: used to manage international cooperative strategies
Chapter 12: Strategic Leadership★Effective strategic leadership is a prerequisite to using the strategic management process successfully★Strategic Leadership and Style○Strategic Leadership: ability to anticipate, envision, mantin flexibility, and empower others to create strategic change as necessary■Strategic Change: change resulting from selecting and implementing a firm's strategies ○Multifunctional in nature, strategic leadership involves:■Managing through others■Managing an entire organization rather than a functional sumunit■Coping with rapid and intense changes associated with the global economy○Ability to attract and then mange human capital is the most critical of the strategic leader’s skills○Primary responsibility rests at the top in particular with the CEO○Other strategic leaders include:■Members of the board of directors■The top management team■Divisional general managers○Any individual with responsibility for the performance of human capital and/or a part of the firm is a strategic leader○Personal ideology and experience influence a leader’s style○Transformational Leadership:■Entails motivating followers to:●Exceed the expectations others have of them●Strengthen their capabilities through continuous training●Place the interest of the organization above their own■Transformational leaders: ●Develop and communicate an organizational vision●Work with others to formulate and execute a strategy to achieve the vision●Have a high degree of integrity and recognize its importance ●Respect their employees●Have emotional intelligence which involves: ○Understanding themselves well○Having string motivation
○Empathizing with others○Having effective interpersonal skills●Promote and nurture innovation ★The Role of Top-Level Manager○Top-level make multiple decisions regarding the strategies their firms will choose and the implementation○Managers often use their discretion (latitude for action), factors that determine the amount of decision-making discretion a manager has are:■External environmental sources■Organizational characteristics■Managerial characteristics ○Top Management Team: composed of individuals responsible for making certain the form uses the strategic management process■Help CEOs: avoid managerial hubris (overconfidence), and make better decisions○Heterogeneous top management team: individuals with different functional backgrounds, experience, and education■Positive relationship with innovation and strategic change○The CEO and Top Management Team Power■CEOs increase their power by:●Appointing a number of sympathetic outside members to the board●Having inside board members who are also on the top management team and report to the CEO●Simultaneously serving as CEO and chair of the board (CEO Duality)★Managerial Succession○Selecting the CEO has been one of the most important responsibilities for a board of directors○Organizations select managers and strategic leaders from 2 types of managerial labor markets:■Internal managerial labor market: consists of a firm's opportunities for managerial positions and the qualifies employees within in (most instances)■External managerial labor market: collection of managerial career opportunities and the qualified people who are external to the organization in which the opportunities exist○Conditions suggesting a potentially appropriate preference to hire from outside include:■Firms need to enhance its ability to innovate■Firms need to reverse ots recent poor performance■The fact that the industry in which the firm competed is experiencing rapid growth
■The need for strategic change ○Retaining executives after an acquisition is important ★Key Strategic Leadership Actions○Effective strategic leadership has 5 key leadership actions:■Determining the firm's strategic direction■Effectively managing the firm's resource portfolio●Exploiting and maintaining core competencies●Managing human capital and social capital■Sustaining an effective organization culture■Emphasizing ethical practices■Establishing balanced organizational controls ○Determining Strategic Direction: involves specifying the vision and the strategy to achieve the vision, evaluate conditions they expect their firm will face over the next 3-5 years■Ideal long-term strategic direction has 2 parts:●A core ideology●An envisioned future■Sometimes strategic leaders fail to select a strategy that helps a firm achieve its strategic direction, this can happen when: ●Top management team and CEO are too committed to the status quo●CEOs have an aversion to risky actions●CEOs are erratic or ambivalent ○Effectively Managing the Firm’s Resource Portfolio■Manage resource portfolio in ways that increase likelihood of string performance, to do this, they:●Organize available resources into capabilities●Structure the firms to facilitate using those capabilities●Choose strategies to leverage the capabilities to create value for customers ■Human Capital: knowledge and skills of a firm's entire workforce ●Effective training and development programs increase the probability that some human capital will become effective strategic leaders ■Social Capital: relationships inside and outside the firm that help in efforts to accomplish tasks that create value for stakeholders●Internal social capital: promotes cooperation and coordination within and across firms units
●External social capital: provides access to resources from external parties that form needs to compete effectively ○Sustaining an effective Organizational Culture:■Organizational Culture: complex set of ideologies, symbols, and core values that individuals and groups share throughout the firm and influence how firm conducts business■Entrepreneurial Mind-Set characterized by:●Autonomy: allows employees to take actions that are free of organizational constraints and encourages them to do so ●Innovativeness: a firm's tendency to engage in and support new idas, novelty, experimentations, and creative processes that may result in new products, services, or technological processes ●Risk Taking: willingness by employees and their form to accept measured levels of risk when pursuing entrepreneurial opportunities ●Proactiveness: a firm's ability to be a market leader rather than a follower ●Competitive Aggressiveness: a firm's propensity to take actions through which it is able to outperform rivals consistently and sustainability ■Shaping and reinforcing a new culture requires:●Effective problem solving●Effective communication practices●Selecting the right people●Engaging in effective performance appraisals●Using appropriate reward systems○Emphasizing Ethical Practices■Ethical practices must be an integral part of organizational culture ■Actions to develop and support an ethical organizational culture:●Establish and communicate goals to describe ethical standard●Revising and updating ethics code, based on inputs from people throughout firm●Disseminating code to all stakeholders●Develop and implement methods and procedures to use in achieving the firm's ethical standards●Create and use explicit reward systems that recognize acts of courage●Create work environment in which all people are treated with dignity ○Establishing Balanced Organizational Controls:
■Help strategic leaders:●Build credibility●Demonstrate the value of strategies to stakeholder●Promote and support strategic change■2 types of organization controls:●Financial: focus on ST financial outcomes, produces more ST and risk-averse decisions●Strategic: focuses on the content of strategic actions rather than their outcomes ■Balanced Scorecard: tool used to determine of firm is achieving an appropriate balance when using strategic and financial controls as means to positively influence performance, 4 perspectives:●Financial (growth, profitability, risk from shareholders perspective)●Customer (amount of value customer perceive)●Internal Business Processes (priorities for various business processes that createcustomer and shareholder satisfaction)●Learning and Growth (efforts to create a climate that supports change, innovation, and growth)Chapter 13: Strategic Entrepreneurship★Strategic Entrepreneurship: involves taking entrepreneurial actions using a strategic perspective, firms engage in opportunity-seeking and advantage-seeking behaviors, create value through the product the firm sells currently ★Corporate Entrepreneurship: use or application of entrepreneurship within an established firm★Entrepreneurship and Entrepreneurial Opportunities:○Entrepreneurship: the process by which individuals, teams, or organizations identify and pursue entrepreneurial opportunities without being immediately constrained by the resources they currently control ○Entrepreneurial Opportunities: conditions in which new goods or services can satisfy a need in the market ○The essence of entrepreneurship is to: ■Identify and exploit entrepreneurial opportunities■Manage risks appropriately as they arise○“Creative destruction” of existing products or methods of producing them and replaces them
○Entrepreneurship positively contributes to performance and stimulates growth in economies ★Innovation○Firms engage in 3 types of innovative activities:■Invention: the act of creating or developing a new product or process, brings something new to being, firms use technical criteria to determine the success ■Innovation: process used to create a commercial product from an invention, brings something new into use, commercial criteria is used to determine success, source of competitive success, (most critical)■Imitation: the adoption of a similar innovation by different firms, commonly imitative products have fewer features and lower price○Entrepreneurship is critical to innovative activity because it acts as the linchpin between invention and innovation★Entrepreneurs: individuals acting independently or as part of an organization who perceive an entrepreneurial opportunity and take risks to develop an innovation and exploit it ○Entrepreneurs: ■Are highly motivated■Are willing to take responsibility for their projects■Are self-confident■Are often optimistic■Tend to be passionate and emotions about their innovation-based ideas■Are able to deal with uncertainty■Are more alert to opportunities than are others○They need to have good social skills and be able to plan exceptionally well○Entrepreneurial Mind-Set: values uncertainty in markets and continuously seeks to identify opportunities in those markets to pursue through innovation■Those without an entrepreneurial mind-set view opportunities as threats ■Includes recognition of the importance of competing internationally as well as domestically, and has the potential to lead to continuous innovation and can be a source of competitive advantage★International Entrepreneurship: firms creatively discover and exploit opportunities that are outside of their domestic markets○Involves risks of: ■Unstable foregin currencies■Market inefficiencies
■Insufficient infrastructures to support businesses■Limitations on market size ○Positive relationship between entrepreneurship and economic productivity○For firms to be entrepreneurial they must simultaneously:■Provide appropriate autonomy and incentives for individuals incentive to surface■Promote cooperation and group ownership of an innovation as foundation for successfully exploiting it ○Firms engaging in international entrepreneurship must concentrate more than companies only in domestic entrepreneurship on: ■Building the capabilities needed to innovate■Acquiring the resources needed to make straoc decisions through which innovations can be exploited successfully○Internationally diversified firms often are stronger competitors in their domestic markets because the learning and economies of scale and scope afforded by operating in international markets, and are generally more innovative ★Internal Innovation○One primary source of internal innovation is efforts in research and development (R&D)■Through R&D firms are able to generate patentable processes and product that are innovative ■The outcomes of R&D investments are uncertain and often not achieved in the ST, patience is required■Successful R&D programs must have high-quality human capital ○Incremental and Novel Innovation■Firms invest in R&D to produce 2 primary types of innovations (both create value):●Incremental Innovation: build on existing knowledge bases and provide small improvements in current products (adding different kind of whitening agent to soap detergent), yield lower profit margins compared to radical innovations○Larger number of incremental innovations because they: are cheaper, are easier to produce, and involve less risk●Radical Innovations: usually provide significant technological changes and create new knowledge (development of driverless cars), revolutionary and nonlinear, rare, require creativity and imagination, require strong and supportive leadership,potential to contribute more significantly then incremental innovations to earn above-average returns
■Internal Corporate Venturing: set of deliberate activities that firms use to develop internalinventions and particularly internal innovations●2 types of internal corporate venturing:○Autonomous Strategic Behavior: bottom-up process, product champion pursues a new idea often through political process by means of which he/she develops and coordinates the actions required to convert and invention into an innovative product and to introduce it into the market ○Induced Strategic Behavior: top-down process, firms current strategy and structure foster innovations that are associated closely with that strategy and structure, determine type and amount of innovation needed★Implementing Internal Innovations○Entrepreneurial mind-setis critical to innovate internally○Firms provide incentives to individuals to be more entrepreneurial as a foundation for successfully developing internal innovation ○Have processes and structures in place through which firm can exploit its innovation○To implement incremental and radical innovations resulting from internal corporate ventures firms integrate the functions in internal innovation efforts (engineering, manufacturing, distribution)○Cross-Functional Product Development Teams: facilitate efforts to integrate activities associated with different organization functions (design, manufacturing, marketing)■Contain individuals representing a wide swath of the organization and ay also include individuals form external organizations such as suppliers ■Make it possible to: ●Complete new product development process more quickly●Commercialize product resulting from the processes more easily ■Horizontalorganizational structures support cross-functional teams efforts to iterate innovation-based activities across organizational functions ■2 barriers with potential to generate conflict and prevent effective use of cross-functionalteams:●Team members’ independent frames of reference: different orientation on issues●Organizational politics: how to allocate resources to different functions○Facilitating Integration and Innovation■Shared valuesand effective strategic leadership are important for achieving cross-functional integration and implementing internal innovations
■As part of culture shared values: ●Are consistent with the firm's vision statement ●Become the glue that promotes integration between functional units■Effective strategic leaders:●Work with others to set goals and allocate resources needed to chive them●Ensure a high-quality communication system that enables the sharing of knowledge among team members who are them able to communicate an innovations existence and importance to others★Innovations through Cooperative Strategies ○Cooperative relationships such as strategic alliances○Both entrepreneurial ventures and established firms use cooperative strategies to innovate ○Alliances formed to foster innovation carry risk○The ideal partnership is one in which firms have complementary skills as well as compatible strategic goals ★Innovation through Acquisitions○2 reasons a firm may choose to innovate through acquisitions are:■To rapidly extend one or more product lines and increase its revenues■To gain ownership of an acquired company’s innovations and access to its innovative capabilities ○Not risk free, fewer allocations may flow to the R&D function○Efforts to innovate through acquiring another company are more successful when:■Strategic purposes drive the acquisitions■The process to integrate the acquired firm into the focal firm proceeds without difficulty ★Creating Value through Strategic Entrepreneurship ○Youngerentrepreneurial ventures generally excel in the opportunity-seeking part of strategic entrepreneurship, while larger more established firms generally excel in the advantage-seeking part○2 skills that are vital for organizational success are:■The ability to innovate■The ability to be strategic in marketplace competitions