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Foundations in Strategic Management, 2e.
1
Foundations in Strategic Management, 2e.
2
Learning Objectives
Understand the:
• The leadership responsibilities of executive managers
• The responsibilities of boards of directors
• The importance of organizational culture in the management of organizations
• The characteristics of resources and capabilities that create a foundation for competitive advantage
• The usefulness of the Value Chain in understanding sources of competitive advantage
• The process of establishing strategic direction
Foundations in Strategic Management, 2e.
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StrategicStrategicDirectionDirection
Strategy FormulationStrategy Formulation(corporate and (corporate and business level)business level)
Strategy ImplementationStrategy Implementationand Controland Control
Strategic RestructuringStrategic Restructuring
Internal and External Internal and External AnalysisAnalysis
Foundations in Strategic Management, 2e.
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Four Primary Responsibilities of Leaders
Four Primary Responsibilities of Leaders
• Design organizational purpose, vision and core values
• Develop policies, strategies and structure
• Create an environment for organizational learning
• Serve as a steward for the organization
• Design organizational purpose, vision and core values
• Develop policies, strategies and structure
• Create an environment for organizational learning
• Serve as a steward for the organization
Foundations in Strategic Management, 2e.
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Corporate GovernanceCorporate Governance
ShareholdersShareholders
Board ofDirectors
Board ofDirectors
Chief ExecutiveOfficer (CEO)
TopManage-MentTeam
TopManage-MentTeam
VP-LegalVP-Financial VP-MarketingVP-Human Res.
Foundations in Strategic Management, 2e.
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Agency TheoryAgency Theory• Agents--managers with a fiduciary duty to act in the best
interests of owners
• Agency problem--managers maximize their own self-interests at the expense of owners
– High salaries of CEOs
– Short-term risk vs. long-term benefits
– Empire building for status
– CEO duality
• Agents--managers with a fiduciary duty to act in the best interests of owners
• Agency problem--managers maximize their own self-interests at the expense of owners
– High salaries of CEOs
– Short-term risk vs. long-term benefits
– Empire building for status
– CEO duality
Foundations in Strategic Management, 2e.
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Governance Trends
Independents
1973 1998
Insiders vs. 10-15 total members 6-8 insiders
11 avg. total members 2 avg. insiders
Independent. nominating committee
2%
74%
Compensation
4% provided stock 78% provided all or part in stock
CEO performance evaluation.
None
72% have formal process 89% of those have annual review
Corporate governance review committee
None
58% have formal governance review committee
Foundations in Strategic Management, 2e.
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Boards of Directors of High Performing Companies
Boards of Directors of High Performing Companies
• Active in governance processes
• Include BOTH insiders and outsiders
• Interlocking directorates
• Active in governance processes
• Include BOTH insiders and outsiders
• Interlocking directorates
Foundations in Strategic Management, 2e.
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Employees and Culture
• Employees and the way they are managed can be important sources of competitive advantage.
• An organization’s culture, the system of shared values that guides employee beliefs and behavior, is another important component of the internal environment.
Foundations in Strategic Management, 2e.
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Resources Leading to Sustainable Competitive
Advantage
Resources Leading to Sustainable Competitive
AdvantageOrganizationalResources and
Capabilities
Financial
Physical
Human
Organizational
VALUABLE?
UNIQUE?
CompetitiveAdvantage
DIFFICULT OR COSTLY
TO IMITATE?
SustainableCompetitiveAdvantage
APPLIEDTO MULTIPLEBUSINESSES?
Core Competencyor Capability
Foundations in Strategic Management, 2e.
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The Value ChainThe Value Chain
Primary Activities
•Inbound Logistics
•Operations
•Outbound Logistics
•Marketing and Sales
•Service
Activities that Support the Primary Activities
•Administration
•Technology Development
•Human Resource Development
•Procurement
Primary Activities
•Inbound Logistics
•Operations
•Outbound Logistics
•Marketing and Sales
•Service
Activities that Support the Primary Activities
•Administration
•Technology Development
•Human Resource Development
•Procurement
Foundations in Strategic Management, 2e.
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Use of Finance in Strategic Management
Use of Finance in Strategic Management
• Identify Strengths and Weaknesses
• Diagnose Problems
– Declining Profitability
– Insufficient Liquidity
– Leverage Too High or Too Low
– Internal Mismanagement
• Determine Ability to Finance Future Plans
– Ability to Borrow
– Stock vs. Debt
• Identify Strengths and Weaknesses
• Diagnose Problems
– Declining Profitability
– Insufficient Liquidity
– Leverage Too High or Too Low
– Internal Mismanagement
• Determine Ability to Finance Future Plans
– Ability to Borrow
– Stock vs. Debt
Foundations in Strategic Management, 2e.
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Some Commonly Used Ratios Some Commonly Used Ratios• Profitability
– Gross Profit Margin
– Net Profit Margin
– ROA
– ROE
• Liquidity
– Current
– Quick
• Leverage
– Debt to Equity
– Total Debt to Total Assets (Asset Ratio)
• Activity
– Asset Turnover Average Collection Period
– Accounts Receivable Turnover Inventory Turnover
• Profitability
– Gross Profit Margin
– Net Profit Margin
– ROA
– ROE
• Liquidity
– Current
– Quick
• Leverage
– Debt to Equity
– Total Debt to Total Assets (Asset Ratio)
• Activity
– Asset Turnover Average Collection Period
– Accounts Receivable Turnover Inventory Turnover
Foundations in Strategic Management, 2e.
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StrategicStrategicDirectionDirection
Strategy FormulationStrategy Formulation(corporate and (corporate and business level)business level)
Strategy ImplementationStrategy Implementationand Controland Control
Strategic RestructuringStrategic Restructuring
Internal and External Internal and External AnalysisAnalysis
Foundations in Strategic Management, 2e.
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John W. Teets, CEOGreyhound Corp.John W. Teets, CEOGreyhound Corp.
“Management’s job is not to see the
company as it is... but as it can become.”
“Management’s job is not to see the
company as it is... but as it can become.”
Foundations in Strategic Management, 2e.
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Strategic DirectionStrategic Direction
• DirectionDirection is defined by mission, business definition, vision and is defined by mission, business definition, vision and enterprise strategyenterprise strategy
• MissionMission: Organizational purpose, what it does, and why it exists. : Organizational purpose, what it does, and why it exists.
• Business definitionBusiness definition: Part of mission, defines products, markets, : Part of mission, defines products, markets, functions served, and resource conversion processes. functions served, and resource conversion processes.
• VisionVision: What the organization wants to be in the future. : What the organization wants to be in the future.
• Enterprise StrategyEnterprise Strategy--Link between mission, vision, and values. What --Link between mission, vision, and values. What should the organization be? down but they still exist, even if by defaultshould the organization be? down but they still exist, even if by default
• DirectionDirection is defined by mission, business definition, vision and is defined by mission, business definition, vision and enterprise strategyenterprise strategy
• MissionMission: Organizational purpose, what it does, and why it exists. : Organizational purpose, what it does, and why it exists.
• Business definitionBusiness definition: Part of mission, defines products, markets, : Part of mission, defines products, markets, functions served, and resource conversion processes. functions served, and resource conversion processes.
• VisionVision: What the organization wants to be in the future. : What the organization wants to be in the future.
• Enterprise StrategyEnterprise Strategy--Link between mission, vision, and values. What --Link between mission, vision, and values. What should the organization be? down but they still exist, even if by defaultshould the organization be? down but they still exist, even if by default
Foundations in Strategic Management, 2e.
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Business DefinitionBusiness Definition• What is our product or service?
• Who are our customers? (markets and distribution channels)
• What do we do for them or provide for them? (functions served by our products or services)
• How do we produce the service or do it? (What are our resource conversion processes, technologies)
• What is our product or service?
• Who are our customers? (markets and distribution channels)
• What do we do for them or provide for them? (functions served by our products or services)
• How do we produce the service or do it? (What are our resource conversion processes, technologies)
Foundations in Strategic Management, 2e.
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Business Definition for Toys ‘R’ Us
Business Definition for Toys ‘R’ Us
• Markets - Children, grandparents, parents
• Functions served (by the stores) - Availability, selection, low prices, easy access
• Resource conversion processes - Buying, inventorying, distributing, limited service, promotion and advertising
• Products/services - Toys and games, clothing and furniture for children
• Markets - Children, grandparents, parents
• Functions served (by the stores) - Availability, selection, low prices, easy access
• Resource conversion processes - Buying, inventorying, distributing, limited service, promotion and advertising
• Products/services - Toys and games, clothing and furniture for children
Foundations in Strategic Management, 2e.
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Mission and Vision of MateriaLink
Mission - MateriaLink provides an electronic marketplace that allows buyers in Engine Procurement, and Construction (EPC) companies worldwide to source, procure and dispose of surplus and new materials in the most efficient manner possible.
Vision - MateriaLink is the premier electronic marketplace for project surplus, new and EPC industry information. We will be the preferred provider for all EPC and new materials transactions. We are committed to continuing to provide a site functionality that will enhance profitability and cut costs for our users.