BUS 496 Strategic Management Ch. 5 – Flashcards

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Long-Term Objectives
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Represent the results expected from pursuing certain strategies; 3-5 years
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Strategies represent the actions to be taken to accomplish:
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Long-term objectives
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Objectives should be:
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Quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, & congruent among organizational units
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Financial Objectives
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Associated with growth in revenues, growth in earnings, higher dividends, larger profit margins, greater return on investment, higher earnings per share, a rising stock price, improved cash flow, etc
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Strategic Objectives
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Include things such as a larger market share, quicker on-time delivery than rivals, shorter design-to-market times than rivals, lower costs than rivals, etc.
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Benefits of having clear objectives
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Provide direction by revealing expectations, allow synergy, aid in evaluation by serving as standards, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, aid in allocation of resources, aid in design of jobs, & provide basis for consistent decision making
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Strategist should avoid:
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Managing by extrapolation, managing by crisis, managing by subjectives, & managing by hope
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Types of strategies
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Forward integration, backward integration, horizontal integration, market penetration, market development, product development, related diversification, unrelated diversification, retrenchment, divestiture, & liquidation
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Combination Strategy
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Simultaneously pursuing two or more strategies is exceptionally risky
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Levels of Strategies - Large Company
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Corporate level, division level, functional level, & operational level
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Levels of Strategies - Small Company
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Company level, functional level, & operational level
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Vertical Integration
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Allow a firm to gain control over distributors, suppliers, or competitors; collection of forward, backwards, and horizontal integrations
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Forward Integration
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Involves gaining ownership or increased control over distributors or retailers
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Franchising
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An effective means of implementing forward integration
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Backward Integration
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A strategy of seeking ownership or increased control of a firm's suppliers
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Horizontal Integration
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A strategy of seeking ownership of or increased control over a firm's competitors
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Intensive Strategies
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Market penetration, market development, & product development; require intensive efforts if a firm's competitive position with existing products is to improve.
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Market Penetration
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Seeks to increase market share for present products or services in present markets through greater marketing efforts
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Market Development
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Involves introducing present products or services into new geographic areas.
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Product Development
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Seeks increased sales by improving or modifying present products or services
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Types of Diversification Strategies
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Related diversification & unrelated diversification
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Related Diversification
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Value chains possess competitively valuable cross-business strategic fits
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Unrelated Diversification
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Value chains are so dissimilar that no competitively valuable cross-business relationship exists
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Defensive Strategies
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Retrenchment, divestiture, & liquidation
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Retrenchment
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Occurs when an organization regroups through cost & asset reduction to reverse declining sales and profits
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Alternative names for retrenchment
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Turnaround & reorganizational strategy
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Bankruptcy
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Allows a firm to avoid major debt obligations & to void union contracts
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Chapter 7 Bankruptcy
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Liquidation procedure used only when a corporation sees no hope of being able to operate successfully or to obtain the necessary creditor agreement
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Chapter 9 Bankruptcy
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Applies to municipalities
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Chapter 11 Bankruptcy
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Allows organizations to recognize & come back after filing a petition for protection
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Chapter 12 Bankruptcy
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Created by the Family Farmer Bankruptcy Act of 1986 and provides special relief to family farmers with debt equal to or less than $1.5 million
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Chapter 13 Bankruptcy
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Reorganization plan similar to Chapter 11, but is available only to small businesses owned by individuals with unsecured debts of less than $100,000 & secured debt of less than $350,000
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Divestiture
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Selling a division or part of an organization
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Liquidation
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Selling all of a company's assets, in parts, for their tangible worth
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Porter's Generic Strategies
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Allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation, & focus
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Cost Leadership
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Emphasizes producing standardized products at a low per-unit cost for consumers who are price-sensitive
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Type 1 Cost Leadership
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Low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market
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Type 2 Cost Leadership
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Best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market
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Differentiation (Type 3)
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A strategy aimed at producing products & services considered unique industry wide & directed at consumers who are relatively price-insensitive
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Focus
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Producing products & services that fulfill the needs of small groups of consumers
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Type 4 Focus
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Low-cost strategy that offers products or services to a small range (niche group) of customers at the lowest price available on the market
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Type 5 Focus
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Best-value strategy that offers products or services to a small group of customers at the best price-value available on the market
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Turbulent, High Velocity Markets
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Industries that are changing rapidly
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Joint Venture
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Occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity
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Cooperative Arrangements
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R&D partnerships, cross-distribution agreements, cross-licensing agreements, cross-manufacturing agreements, & joint-bidding consortia
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Merger
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Occurs when two organizations of about equal size unite to form one enterprise
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Acquisition
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Occurs when a large organization purchases (acquires) a smaller firm, or vice versa
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Takeover or Hostile Takeover
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When a merger or acquisition is not desired by both parties
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Friendly Merger
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When a acquisition is desired by both parties
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White Knight
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Refers to a firm that agrees to acquire another firm when that other firm is facing a hostile takeover by some company
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Leveraged Buyout (LBO)
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Occurs when a corporation's shareholders are bought by the company's management & other private investors using borrowed funds
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First Mover Advantages
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The benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms
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Business-Process Outsourcing (BPO)
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Involves companies hiring other companies to take over various parts of their functional operations, such as human resources, IS, payroll, accounting, customer service, and marketing
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Reshoring
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US companies planning to move some of their manufacturing back to the US
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