Ch. 1 Strategic Management

*KEY TERMS*
Romantic view of leadership
Situations in which the leader is the key force determining the organization’s success or lack thereof.
External control view of leadership
Situations in which external forces-where the leader has limited influence-determine the organization’s success.
Strategic Management
The analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.
Strategy
The ideas, decisions, and actions that enable a firm to succeed.
Competitive Advantage
A firm’s resources and capabilities that enable it to overcome the competitive forces in its industry(ies).
Operational Effectiveness
Performing similar activities better than rivals
Stakeholders
Individuals, groups, and organizations who have a stake in the success of the organization, including owners, employees, customers, suppliers, and the community at large.
Effectiveness
Tailoring actions to the needs of an organization rather than wasting effort, or “doing the right thing.”
Efficiency
Performing actions at a low cost relative to a benchmark or doing things right.
Strategic Management Process
Strategy analysis, strategy formulation, and strategy implementation.
Ambidexterity
The challenge managers face of both aligning resources to take advantage of existing product markets as well as proactively exploring new opportunities.
Intended strategy
Strategy in which organizational decisions are determined only by analysis.
Strategy Analysis
Study of firms’ external and internal environments, and their fit with organizational vision and goals
Realized Strategy
strategy in which organizational decisions are determined by both analysis and unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences
Strategy formulation
Decisions made by firms regarding investments, commitments, and other aspects of operations that crate and sustain competitive advantage.
Strategy implementation
Actions made by firms that carry out the formulated strategy, including strategic controls, organizational design, and leadership.
Corporate governance
The relationship among various participants in determining the direction and performance of corporations. The primary participants are -stakeholders, the management, and the board of directors.
Stakeholder management
a firm’s strategy for recognizing and responding to the interests of all its salient stakeholders
Social responsibility
The expectation that businesses or individuals will strive to improve the overall welfare of society.
Triple bottom line
Assessment of a firm’s financial, social, and environmental performance.
Mission statement
A set of organizational goals that include both the purpose of the organization, its scope of operations, and the basis of its competitive advantage.
Strategic objectives
a set of organizational goals that are used to operationalize the mission statement and that are specific and cover a well-defined time frame
Hierarchy of goals
organizational goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable.
Vision
Organizational goals that evoke powerful and compelling mental images.
*SUMMARY REVIEW QUESTIONS*
1. How is “strategic management” defined in the text, and what are its four key attributes?
Strategic management is the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. The four key attributes of strategic management are that it:
• Directs the organization toward overall goals and objectives
• Includes multiple stakeholders in decision-making
• Needs to incorporate short-term and long-term objectives
• Recognizes trade-offs between efficiency and effectiveness
2. Briefly discuss the three key activities in the strategic management process. Why is it important for managers to recognize the interdependent nature of these activities?
The three key attributes in the strategic management process are analyses, decisions, and actions. Analysis, also called strategy analysis, refers to managers’ development of an understanding of the organization’s internal and external environment, and the organization’s overarching goals. These understandings are an important prerequisite for the strategic management process.

Decisions, also called strategy formulation, refer to the overall plans that firms develop to compete and outperform their rivals. These plans utilize the results of strategy analysis, by formulating strategies that use their strengths, limit weaknesses, exploit opportunities, and defend against threats simultaneously.

Actions, also called strategy implementation, refer to ensuring that proper strategic controls and organizational designs are put in place to carry out the strategy.

The interdependent nature of these activities stems from various feedback mechanisms that occur as managers implement their firms’ strategies. Unforeseen environmental developments, unanticipated resource constraints, and/or changes in managerial preferences will force firms to modify their intended strategy, combining it with an emergent strategy, and resulting in a realized strategy. The realized strategy will in turn be modified by further unforeseen events. The continually modified realized strategy will consist of refined analyses, decisions, and actions that are constantly being updated.

3. Explain the concept of “stakeholder management.” Why shouldn’t managers be solely interested in stockholder management, that is, maximizing the returns for owners of the firm—its shareholders.
Stakeholder management is where multiple individuals or groups, who have a stake in or can influence an organization’s performance, are included in the strategic management process. So, top managers will be interested in satisfying the needs of shareholders and other stakeholders such as customers, suppliers, employees, creditors, government, and the community.

Managers who are interested solely in stockholder management are likely to make decisions that satisfy short-term profit objectives. These decisions might include downsizing, neglect of asset maintenance, or put pressure on suppliers to lower prices. However, these decisions are likely to adversely affect long-term performance. Top managers who pay attention to all stakeholders are less likely to make decisions counter to the firm’s objective of long-term profit maximization.

4. What is “corporate governance”? What are its three key elements and how can it be improved?
Corporate governance is defined in the text as the relationship among various participants in determining the direction and performance of corporations. The primary participants are (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors. Corporate governance is designed to focus the efforts of the CEO on maximizing long-term shareholder wealth. The board of directors is elected or chosen by shareholders, and is charged with monitoring and evaluating CEO performance.

Corporate governance can be improved by including other stakeholder representatives on the board of directors. These other members would ensure that top management will respond to these interests and become more socially responsible in addition to earning profits. Managers will respond to and exploit overlapping stakeholder interests, which can lead to increased long-term profits.

5. How can “symbiosis” (interdependence, mutual benefit) be achieved among a firm’s stakeholders?
Stakeholder management will, in part, be tricky because of competing interests. For example, customers may want lower prices while shareholders might want higher prices (which may lead to higher profits). However, stakeholder symbiosis can also result because stakeholders depend on each other for success and well-being. Firms can achieve stakeholder symbiosis by learning stakeholder interests and looking for overlaps. For example Outback Steakhouse discovered that employees and customers both benefited by employing staff who agreed with the company’s principles and beliefs. Such staffs tended to have lower turnover and more satisfied customers.

Inclusion of stakeholders such as the community, government, and environmental groups can also increase a firm’s reputation. For example, firms that use a triple bottom line and evaluate their performance in financial, social, and environmental dimensions are likely to have good reputations with customers, governments, and the community at large.

6. Why do firms need to have a greater strategic management perspective and empowerment in the strategic management process throughout the organization?
In today’s complex and dynamic business environment, top managers do not have all the answers. Rather, top managers will be responsible for communicating their firms’ strategies to lower-level managers, and in turn empower these managers with discretion to respond quickly and appropriately to opportunities as they arise. Such empowerment enables a firm to respond more quickly to the needs of customers and stakeholders, thus improving competitiveness.
7. What is meant by a “hierarchy of goals”? What are the main components of it, and why must consistency be achieved among them?
An organization’s hierarchy of goals refers to goals ranging from, at the top, those that are less specific yet able to evoke powerful and compelling mental images, to, at the bottom, those that are more specific and measurable. The main components are, at the top, the organizational vision, which evokes powerful and compelling mental images, the mission statement, which includes both the purpose of the organization, its scope of operations, and the basis of its competitive advantage, and the strategic objectives, which are used to operationalize the mission statement and that are specific and cover a well-defined time frame.

There must be consistency among these goals in order to maximize employee motivation and a sense of equity and fairness when rewards are allocated. Inconsistency among the goals between any level can result in confusion among employees as to what the firm values, and subsequently to loss of identification with the firm, loss of motivation, and turnover.

*PRACTICE QUIZ*
1. In which view of leadership, is the leader seen as the key force in determining the success of the organization?
A) internal
B) external
C) personal
D) romantic
D) romantic
2. Which of the following is likely to be a result of unique, valuable, and difficult for rivals to copy competitive advantages?
A)a targeted outcome
B) a sustainable outcome
C) a focused outcome
D) a popular outcome
B) a sustainable outcome
3.Strategic management involves the consideration of effectiveness and efficiency with no recognition of the trade-offs between the two.
A) True
B) False
B) False
4. A good manager has no flexibility, when considering the original strategic plan. The intended strategy must, in all cases, be the realized strategy in order for a firm to get good results.
A) True
B) False
B) False
symbiosis
5. Zero sum thinking is in direct contrast with ________ thinking.
A) emergent strategic
B) symbiosis
C) leadership
D) creative
6. The stakeholders who are relevant for an organization, meaning that they have a stake in and can influence the performance of an organization, include shareholders and other individuals and groups that are internal and external to the organization.
A) True
B) False
A) True
False
For organizations to be socially responsible, they must be accountable only to their stockholders.
8. The three components of the triple bottom line approach to corporate accounting include _______, environmental, and social performance measures.
A) social
B) stakeholder
C) financial
D) marketing
C) financial
throughout the organization
9. Strategic management should take place at what organizational level?
A) at the top of the organization
B) throughout the organization
C) from the bottom up in an organization
D) at the middle of the organization
10. Vision statements do not cover strategic objectives. They are more general in nature.
A) True
B) False
A) True