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Summary Management course book by Francesca Vicentini
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A summary of all the chapters covered in the management course book written by Francesa Vicentini
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ManagementRomantic view of leadership is a situation in which the leader is the key force determining
the organization’s success-or lack thereof.
External control view of leadership is a situation in which external forces—where the leader
has limited influence—determine the organization’s success.
Strategic Management consists of the analyses, decisions and actions an organization
undertakes in order to create and sustain competitive advantages.
o is directed toward overall organizational goals and objectives. Efforts must be
directed at what is best for the organization.
o includes multiple stakeholders in decision making. Managers will not be successful
if they focus on a single stakeholder.
o requires incorporating both short term and long-term perspective. Managers must
maintain both a vision for the future of the organization and a focus on its present
operating needs.
o involves the recognition of trade-offs between effectiveness and efficiency. While
managers must allocate and use resources wisely, they must still direct their efforts
toward the attainment of overall organizational objectives.
PROCESS:
1. Firms must take the necessary actions to implement their strategies. This requires
leaders to allocate the necessary resources and to design the organization to bring
the intended strategies to reality.
2. That means focusing on two fundamental questions:
How should we compete to create competitive advantages in the
marketplace?
How can we create competitive advantages in the marketplace that are
unique, valuable, and difficult for rivals to copy or substitute?
---competitive advantage: a firm’s resources and capabilities that enable it
to overcome the competitive forces in its industries. ---
---operational effectiveness: performing similar activities better than rivals.
---
---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.’---
Innovation Paradox
A firm’s long-term survival requires taking risks and learning from failure in the pursuit of
new products and services. However, companies also need consistency in their products and
services. Depicts the tension between existing products and new ones, stability and change.
Globalization Paradox
New ideas can emerge from innovative activities that are dispersed throughout the world.
However, not having all the talent and brains in one location can be costly.
Obligation Paradox
Being socially responsible may bring down a firm’s share price and prioritizing employees
may conflict with short term shareholders or customers’ needs.
Strategy Analysis
Strategy analysis is a study of firms’ external and internal environments, and their fit with
organizational vision and goals. It consists of the ‘advance work’ that must be done in order
to effectively formulate and implement strategies.
Strategy Formulation
Strategy Formulation is decisions made by firms regarding investments, commitments and
other aspects of operations that create and sustain competitive advantage. It is developed at
several levels.
1. Business level strategy addresses the issue of how to compete in a given business to
attain competitive advantage.
2. Corporate level strategy focuses on two issues:
What businesses to compete in
How businesses can be managed to achieve synergy
3. A firm must develop international strategies as it ventures beyond its national
boundaries.
4. Managers must formulate effective entrepreneurial initiatives.
Strategy Implementation
,Strategy Implementation involves ensuring proper strategic controls and organizational
designs, which includes establishing effective means to coordinate and integrate activities
within the firm as well as with its suppliers, customers and alliance partners.
Leadership plays a central role to ensure that the organization is committed to excellence
and ethical behavior. It also promotes learning and continuous improvement and acts
entrepreneurially in creating new opportunities.
---corporate governance: 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 CEO,
and (3) the board of directors. ---
---stakeholder management: a firm’s strategy for recognizing and responding
to the interests of all its salient stakeholders. ---
---‘zero sum’: the gain of one (stakeholder) individual or group is the loss of
another (stakeholder) individual or group. ---
---Hierarchy of goals: organizational goal ranging from, at the top, those that
are less specific yet able to evoke powerful and controlling mental images,
at the bottom, those that are more specific and measurable. It also includes
the firm’s vision, mission, and strategic objectives. ---
Organizational Vision
A vision is a goal that is ‘massively inspiring, overarching, and long-term. It represents a
destination that is driven by and evokes passion.
However, visions may fail for many reasons:
The Walk doesn’t match the Talk: An idealistic vision can arouse enthusiasm. It can
be quickly dismissed if employees find that the senior management’s behavior is not
consistent with the vision.
Irrelevance: Visions that are disconnected from real-world challenges, opportunities,
or the organization's strengths may not resonate with the people expected to support
them.
Not the Holy Grail: Managers often look for a single, perfect solution to solve all their
company's problems, like a "holy grail" of management.
Too Much Focus Leads to Missed Opportunities: If you're overly fixated on a big
vision, there's a risk of missing out on valuable opportunities.
An Ideal Future Irreconciled with the Present: People struggle to connect with a
vision that only shows a bright future without acknowledging the challenges in the
competitive environment or the weaknesses of the organization.
,Mission Statements
A mission statement is a set of organizational goals that identifies the purpose of the
organization, its basis of competition and competitive advantage. While the vision statement
is broad-based, the mission statement is more specific and focused on the means by which
the firm will compete.
Good mission statements recognize the importance of managing various stakeholders, such
as customers, employees, suppliers, and owners. They work best when they reflect the
organization's long-term strategic priorities and competitive position. Mission statements
can differ in length and detail.
Strategic Objectives
Strategic objectives are a set of organizational goals that are used to put into practice the
mission statement and that are specific and cover a well-defined time frame.
It is used to operationalize the mission statement.
They help to provide guidance on how the organization can fulfill or move toward the
‘higher goals’ in the goal hierarchy-the mission and vision.
For objectives to be meaningful:
o Measurable There must be at least one indicator that measures progress against
fulfilling the objective.
o Specific This provides a clear message as to what needs to be accomplished.
o Appropriate It must be consistent with the organization’s vision and mission.
o Realistic It must be an achievable target given the organization’s capabilities and
opportunities in the environment.
o Timely There must be a time frame for achieving the objective.
External Environment of the Firm
Environmental scanning involves surveillance of a firm’s external environment to predict
environmental changes and detect changes already underway. This alerts the organization to
critical trends and events before changes develop a noticeable pattern and before
competitors recognize them.
Environmental Monitoring tracks the evolution of environmental trends, sequences of
events or streams of activities. They may be trends that the firm came across by accident or
,ones that were brought to its attention from outside the organization. Monitoring enables
firms to evaluate how dramatically environmental trends are changing the competitive
landscape.
Competitive Intelligence helps firms define and understand their industry and identify
rivals’ strengths and weaknesses. This includes the intelligence gathering associated with
collecting data on competitors and interpreting such data. Done properly, CI helps a
company avoid surprises by anticipating competitors’ moves and decreasing response time.
Environmental scanning, monitoring, and competitive intelligence are important inputs for
analyzing the external environment.
Environmental forecasting involves the development of plausible projections about the
direction, scope, speed and intensity of environmental change. Its purpose is to predict
change.
Scenario Analysis is a move in depth approach to forecasting. It draws on a range of
disciplines and interests, among them economics, psychology, sociology and demographics.
It involves the projection of future possible events.
PESTEL
o Political/Legal
The political/legal segment of the general environment refers to the aspects of
the external environment that involve the political and legal systems within a
society. It encompasses the mechanisms through which a society creates and
exercises power, including the establishment and enforcement of rules, laws,
and taxation policies.
Key elements include tort reform, Americans with Disabilities Act (ADA) of
1990, deregulation of utility and other industries, increases in federally
mandated minimum wages, taxation at local, state, federal levels, Legislation
on corporate governance reforms in bookkeeping, stock options, Affordable
Care Act.
o Economic
The economy segment of the general environment refers to the
characteristics of the economy, including national income and monetary
conditions.
Key economic indicators include interest rates, unemployment rates, the
consumer price index, the trends in gross domestic product, changes in stock
market valuations and national debt.
o Sociocultural
, Sociocultural forces influence the values, belief and lifestyles of a society.
Key factors include more women in the workforce, increase in temporary
workers, greater concern for fitness, greater concern for environment and
postponement of family formation.
o Technological
The technological segment of the general environment refers to the state of
innovation and knowledge in industrial arts, engineering, applied sciences,
and pure science, as well as their interaction with society.
Current technological trends cover areas like genetic engineering, Internet
technology, research in artificial and exotic materials, and environmental
concerns like pollution and global warming. Also, 3D printing,
miniaturization of computing technologies, wireless communication,
nanotechnology and big data analytics.
o Environmental
o Demographic
These are genetic and observable characteristics of a population, including the
levels and growth of age, density, sex, race, ethnicity, education, geographic
region and income.
o Global
Global segment of the general environment refers to the influences from
foreign countries, including foreign market opportunities, foreign based
consumption, and expanded capital markets.
Key elements include changes in global trade, currency exchange rate,
emergence of the Indian and Chinese economies, Trade agreements among
regional blocs, creation of WTO and increased risks associated with terrorism.
---Industry: a group of firms that produce similar goods or services. ---
---Competitive environment: The competitive environment consists of
competitors, customers, and suppliers. These factors pertain to an industry
and can affect a firm’s strategy. ---
Porter’s Five Forces
The Porter’s five forces are tools for examining the industry-level competitive environment,
especially the ability of firm in that industry to set prices and minimize costs. It helps decide
whether the firm should remain or exit an industry. It provides the rationale for increasing
,or decreasing resource commitments. The model helps access how to improve the firm’s
competitive position with regard to each of the five forces.
o The threat of new entrants
o The bargaining power of buyers
o The bargaining power of suppliers
o The threat of substitute products and services
o The intensity of rivalry among competitors in an industry
The Threat of New Entrants
The threat of new entrants refers to the possibility that the profits of established firms in the
industry may be eroded by new competitors. There are six major sources of entry barriers:
Economies of scale: It refers to spreading the costs of production over the number
of units produced. The cost per unit of production declines. This deters entry by
forcing the entrant to come in on a large scale and risk a strong reaction from
existing firms or come in at a small scale and accept a cost disadvantage.
Product Differentiation: Product differentiation creates a barrier to entry by
forcing entrants to spend heavily to overcome existing customer loyalty.
Capital Requirements: They need to invest large financial resources to compete,
which creates a barrier to entry, especially if the capital is required for risky or
unrecoverable up-front advertising or research and development.
Switching Costs: A barrier to entry is created by the existence of one-time costs
that the buyer faces when switching from one supplier’s product or service to
another. (ex. Exit fees, start up costs)
Access to Distribution Channels: The new entrants need to secure distribution for
its product which can create a barrier to entry.
Cost Disadvantages Independent of Scale: Some existing competitors may have
advantages that are independent of size or economies of scale. These are maybe:
Proprietary products
Favorable access to raw materials
Government subsidies
Favorable government policies
,The Bargaining Power of Buyers
Buyers threaten an industry by forcing down prices, bargaining for higher quality or more
services and playing competitors against each other. A buyer group is powerful when:
It is concentrated or purchase large volumes relative to seller sales: If a large
percentage of a supplier’s sales are purchased by a single buyer, the importance of
the buyer’s business to the supplier increases. Large volume buyers also are powerful
in industries with high fixed costs.
The products it purchases from the industry are standard or undifferentiated:
Confident they can always find alternative suppliers; buyers play one company
against the other.
The buyer faces few switching costs: Switching costs lock the buyer to particular
sellers. The buyer’s power is enhanced if the sellers have high switching costs.
It earns low profits: Low profits create incentives to lower purchasing costs.
The buyers pose a credible threat of backward integration: If buyers either are
partially integrated or pose a credible threat of backward integration, they are
typically able to secure bargaining connections.
The industry’s product is unimportant to the quality of the buyer’s products or
services: When the quality of the buyer’s product is not affected by the industry’s
product, the buyer is more price sensitive. (ex. Restaurant’s success depends on the
chefs, not on quality of the kitchen)
---Backward integration is the process by which the companies acquire a
segment of their downstream supply chain. ---
The Bargaining Power of Suppliers
Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of
purchased goods and services. A supplier group will be powerful when:
The supplier group is dominated by a few companies and is more concentrated than
the industry it sells to: A small number of companies control most of the suppliers,
and they have more influence than the companies they sell to. (ex: small number of
companies may dominate the supply of crucial components like microprocessors or
display panels)
The supplier group is not obliged to contend with substitute products for sale to the
industry: Suppliers don't face competition from alternative products when selling to
the industry. For instance, if a company provides specialized software crucial for a
specific industry, there might not be comparable alternatives for the buyers to
consider.
, The industry is not an important customer of the supplier group: When suppliers sell
to several industries and a particular industry does not represent a significant
fraction of its sales, suppliers are more prone to exert power.
The supplier’s product is an important input to the buyer’s business: When such
inputs are important to the success of the buyer’s manufacturing process or product
quality, the bargaining power of supplier is high.
The supplier group’s products are differentiated, or it has built up switching costs for
the buyer: The supplier's products are unique, or the buyer faces costs when
switching to another supplier.
The supplier group poses a credible threat of forward integration: Suppliers can
realistically threaten to start competing with the companies they sell to.
---forward integration is the process by which companies acquire a segment
of their upstream supply chain. ---
The Threat of Substitute Products and Services
The threat of substitutes products and services is the threat of limiting the potential returns
of an industry by placing a ceiling on the prices that firms in that industry can profitably
charge without losing too many customers to substitute products.
Substitute products and services are products and services that are outside the industry that
serve the same customer needs as the industry’s products and services. (ex. The airline
industry might not consider video cameras much of a threat, but as digital technology has
improved and wireless and other forms of telecommunication have become more efficient,
teleconferencing has become a viable substitute for business travel.)
The Intensity of Rivalry among Competitors in an Industry
The Intensity of rivalry among competitors in an industry is the threat that customers will
switch their business to competitors within the industry. Rivalry occurs when competitors
sense the pressure or act on an opportunity to improve their position. Intense rivalry is
result of several factors including:
Numerous or equally balanced competitors: In an industry with many firms, there's a
high chance of rebels – companies thinking they can make unnoticed moves. Even in
industries with a few equally matched firms, conflicts arise due to their ability to
retaliate strongly.
, Slow industry growth: Slow industry growth turns competition into a fight for market
share since firms seek to expand their sales.
High fixed or storage costs: When fixed costs are high, all companies feel compelled
to expand their production capabilities. This surplus capacity frequently results in
intense competition and price wars.
Lack of differentiation or switching costs: If the product or service is seen as a
common or almost common item, buyers usually decide based on price and service.
This leads to strong competition in both pricing and services, especially when there
are no significant switching costs.
Capacity augmented in large increments: Where economies of scale require that
capacity must be added in large increments, capacity additions can be very disruptive
to the industry demand/supply balance.
High exit barriers: Exit barriers are factors, including economic, strategic, and
emotional considerations, that prevent companies from leaving a market even when
their profits are low or negative. These barriers can include specialized assets, costs
tied to exiting, strategic connections, emotional ties, and external pressures like
government concerns about job loss.
Check Page 57
Resource Based View of the Firm
The resource-based view of the firm is the perspective that firms’ competitive advantages are
due to their endowment of strategic resources that are valuable, rare, costly to imitate and
costly to substitute.
It combines two perspectives:
- the industry analysis of phenomena within a company
- an external analysis of the industry and its competitive environment
Types of Firm Resources
Tangible Resources: These are assets that are relatively easy to identify. They include the
physical and financial assets that an organization uses to create value for its customers.
o Financial resources: firm’s cash, accounts receivable and its ability to borrow funds.
o Physical resources: Company’s plant, equipment and machinery and its proximity to
customers and suppliers.
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