Strategic Management Mid-Term Exam TCU Legatski
Within the contemporary approach to strategic management, compare and contrast informational controls and behavioral controls
Informational controls are the questions an organization must ask itself to determine if they are doing the right things. An organization accomplishes this by continually challenging assumptions, goals and strategy. Behavioral controls are the questions an organization must ask itself to determine if they are doing things correctly. This includes finding and maintaining the right culture, rewards and boundaries for the organization. While behavioral controls can be changed relatively easily and quickly, informational controls require more effort as changing informational controls requires challenging people’s past ideas. Both controls are vital to an organization’s success because the activities in the contemporary approach take place simultaneously and are mutually dependent upon each other.
Thinking about the basis for a sustainable competitive advantage has evolved over the years, with three paradigms having emerged—Industrial Economics Perspective, Resource-Based View, and Organizational Learning / Intellectual Capital. Identify and discuss (DO NOT JUST LIST) the Organizational Learning / Intellectual Capital paradigm in terms of its theory of sustainable competitive advantage.
Organizational learning- continued learning to grow and find new competitive advantages coupled with maintaining intellectual capital can generate a sustainable competitive advantage. This knowledge must be valuable, rare and hard to imitate in order to create a sustainable competitive advantage.
Primary tools of organizational learning
The key perspective in organizational learning is entrepreneurship and firms that use this philosophy must be dedicated to making their organization an entrepreneurial organization. These firms must be willing to abandon a current strategy if it means staying ahead of the competition and not being leap-frogged.
Key resources of organizational learning
The key resource in this perspective is human and intellectual capital in the form of knowledge. There are three key forms of knowledge: implicit- the knowledge held by an individual employee, explicit- the formal and codified knowledge shared throughout the organization and new knowledge- the combination of explicit and implicit knowledge. Organizations must focus on creating new knowledge because implicit and explicit knowledge each have their own weaknesses and must be combined to create new knowledge, which is the most valuable kind of knowledge to an organization.
Identify and discuss the key elements of George Day’s Competitive Advantage Cycle and its implications for strategic managers
Every firm starts with a source of competitive advantage and must execute on these advantages to create a positional advantage. An advantage is then used to create performance rewards. Eventually the advantages fade as competition increases but the decrease is slowed by barriers to imitation. Once the competitive advantage no longer exists, the profits and market shared earned by that advantage must be invested to new assets and capabilities to build a new competitive advantage. This is important for managers because they must realize that every competitive advantage will eventually fade away and they must identify the next advantage that must be exploited for their organization.
Explain the importance of, and implications for strategic managers of, the following principle “Strategy is about being different in valuable ways.” Give a real-world example
Strategy is the root of how an organization gains and sustains a competitive advantage, the unique position an organization occupies in the mind of its customers. Failure to establish and maintain this unique positioning eliminates any chance to have a competitive advantage. Managers must do everything to protect and maintain their positioning in their customers’ minds because that is the basis of their organization’s success. For example, Nike will do anything to ensure that they are perceived as the leading sports apparel brand in the world. They do this because they do not want to be grouped together in the minds of customers with competitors like adidas, new balance and under armour, Nike would then become a me-too company which would severely impact and damage their strategy.
Explain the importance of, and implications for strategic managers of, the following principle “No strategy is formulated or implemented in a vacuum.” Give a real-world example
Businesses don’t compete in a controlled environment and so they must formulate their strategy based on the uncertain environments they will compete in, both internally and externally. Anticipation for future changes in these environments is critical to a strategy’s success. Every strategy must also account for competitors: who they are now and who they could be, what they’re capable of, what they’ve done before, what they’re likely to do in the future and how all of that affects our organization. For example, if American Airlines is considering implementing a new component to a frequent fliers program, they must consider how competitors may react to it. If Southwest Airlines is capable of and likely to respond to AA’s new frequent flier program with a more attractive program, then it would not be a wise decision for AA to implement this obsolete program.
Explain the importance of, and implications for strategic managers of, the following principle “Metric selection is more important than strategy selection.” Give a real-world example
People do the things by which they are measured because of the incentive of performing well on a measured test. When organizations pick the wrong things to measure, strategies fail. Metrics must be complementary to strategy and any changes to strategy must be accompanied with changes to metrics. For example, if bank tellers are paid on a per transaction basis, they will rush through customer interactions in order to accumulate more transactions, regardless of customer feedback. While this makes customer interactions speedier, it’s a bad metric because it frustrates customers and doesn’t incite a positive customer experience.
Explain the importance of, and implications for strategic managers of, the following principle “Execution trumps planning.” Give a real-world example
It’s one thing to have a great strategy, it’s another to actually follow through on that great strategy. Unless an organization’s great strategy is properly executed, it will not realize its potential. In the same way, an adequate plan with great execution should be more effective than expected. This is important for managers because they must understand that real-time adaptation will help an organization maintain a competitive advantage than stringently following previous plans. For example, Wendy’s may have put more resources into developing and planning their strategy but they may not execute as well as they should to get the most out of this plan and strictly stick to this plan. Whereas In-n-Out may not have as strong of a planned strategy but they execute more effectively and outperform their strategy and make adaptations when necessary.
Explain the importance of, and implications for strategic managers of, the following principle “Organizations are perfectly structured to get the results they’re getting.” Give a real-world example
Strategy is implemented through structure which includes how authority and resources are allocated, communication systems, formal and informal control systems and reward and compensation systems. If an organization’s results are unsatisfactory, analyzing the organization first will provide more insight than blaming the external environment. For example, if a car dealership is concerned about customer complaints about the service department that are not resolved quickly enough, the dealership should examine the communication system and authority structure in place to provide the service to the customer. If there are too many people that have to approve actions unnecessarily that slow the process down, the dealership should look to give more authority to fewer people in order to speed up the service process for their customers.
Explain the importance of, and implications for strategic managers of, the following principle “Different strategies require different resource investments.” Give a real-world example
Resources are not easily transferrable and strategies must account for the resources a firm has, firms can’t simply acquire the necessary resources most of the time. Resources determine a firm’s strategy, not strategy determining resources. Managers should only implement strategies for which they have the resources to implement. For example, if Ford wanted to start building their own car seats and seatbelts and other component parts that they purchase from suppliers, they would struggle to accumulate the necessary physical and intellectual resources to make this strategy happen. Ford chooses to purchase these component parts from suppliers because it is part of their resource base and their strategy.
Discuss the concept of core competencies, how they are developed, and their potential for sustainable competitive advantage
Core competencies are the things that a firm does better than everyone else in the industry. The three things that most contribute to core competencies are capabilities, resources and activities. Every activity performed by an organization should add value to the organization and ultimately contribute to an organization’s core competency. Southwest Airlines strives to be the cost-leader in the airline industry and so they cut out some activities other airlines do in order to cut costs. Resources include both the tangible assets and intangible assets that are unique to a company. Coca-Cola has a strong mix of intangible assets such as their brand equity, patents and secret formulas and tangible assets including their widespread distribution. Organizational capabilities come from strategically orchestrating diverse resources. Apple is an example of an organization that has a diverse set of resources and implements these resources in several different industries, from entertainment, computers, phones and several others. Core competencies provide the potential for organizations to develop them into sustainable competitive advantages because if an organization does it well enough, the organization will earn a unique positioning within their customers’ minds, which is the basis for a sustainable competitive advantage
In the Resource-Based View (RBV), in order for a resource to be a source of sustainable competitive advantage, it must satisfy four criteria. Identify and briefly discuss these four criteria
Resources must be valuable, rare, hard to imitate and central to strategy. Valuable- does the resource help the firm react to threats or opportunities. If it’s valuable, it increases the perceived value of the product or service in the eyes of customers, if not, it creates a competitive disadvantage. Rare- only a few or no firms can possess it. As more firms possess the same resources, competition becomes more even and there is no competitive advantage for a single organization. Hard to imitate- resource cannot be quickly matched. If other firms cannot attain the resource at a reasonable price, it can lead to a sustainable advantage for a firm that possess it. Central to strategy- the resource must be fully leveraged. The organization’s structure and systems must be conducive to capturing the full value of the resource. If the firm cannot capture the resource’s full value, it will only create a temporary advantage.
In the Resource-Based View (RBV), the sustainability of a competitive advantage is a function of how easily the advantage can be imitated by competitors (inimitability). Four factors contribute to inimitability. Identify and briefly discuss these four factors
Inimitability- Physical uniqueness, path dependency, causal ambiguity and social complexity. Physical uniqueness- product or service must be tangibly different from the competition. Path dependency- the route the firm takes to achieve its unique positioning isn’t replicable by a competitor. Causal ambiguity- competitors cannot determine how a firm’s competitive advantage exists and how they develop it. Social complexity- interaction between people. The role of culture, experience of working together and complexity of interactions between people that make a firm’s strategy unique