Shared Flashcard Set

Details

Capstone Final
UCF
105
Business
12/05/2010

Additional Business Flashcards

 


 

Cards

Term

 

 

 

 

Corporations: Complicated vs. Complex

Definition

 

  • Corporations..
    • Complex, dynamic organisms
    • Present themselves as complicated, mysterious, and impenetrable mazes of activity
  • To Understand How..
    • Corporations act, you must understand how Corporations think
    • Corporations think, you must understand what they say
  • What Corporations..
    • Say is not always what they mean
    • Mean is not always what you hear

 

Term

 

 

 

Evolution of Successful Corporations

Definition

  • Function much like living organisms 
  • Survival depends much more on adaptability than size
  • Growth tends to slow decisions
  • Predators need a steady supply of prey
  • Don't hunt for opportunity, use their own resources to grow their own

Term

 

 

 

Public vs. Private Corporations

Definition

  • Public: have to disclose information about themselves
  • Private: do not have to disclose information

Term

 

 

 

Corporate Style: Economic vs. Political

Definition

  • Corporation is two separate organisms who are rarely in sync with each other
    • Economic: thrives on logic and process
    • Political: thrives on power and personality
  • Stakeholders are often caught in the cross-fire
    • Boards are the official "arrow catchers"
    • Independent directors better at blocking
    • Inside directors better at ducking

Term

 

 

 

Corporate Politics: Warning signs you're in the wrong group

Definition

 


  • Self-promoters
  • Insinuators
  • Magicians
  • Strategists
  • Bullies

 

Term

 

 

 

Corporate Politics: Warning signs you're in line to "lose"

Definition

  • Risky assignments
  • Responsibilities reduced
  • Responsibilities raised
  • Sudden upward move in your position
  • Paid extremely well
  • Asked to relocate
  • Advancement has stalled
  • Get a new manager

Term

 

 

 

Corporate Politics: Top 10 ways to improve odds of winning

Definition

  1. Establish a strong personal profile
  2. Use communications consistently and effectively 
  3. Support your colleagues
  4. Be a problem solver, not a problem finder
  5. Practice "dancing on the edge of the knife"
  6. Your management's priority IS your priority
  7. Demonstrate your skill and ability
  8. Think long term
  9. Support your boss
  10. Build your own political "clout" base

Term

 

 

 

 

Questions Related to Corporate Strategy

Definition

 

 

  1. In which business arenas should a company compete?
  2. Which vehicles should it use to enter/exit a business?
  3. What underlying economic logic makes it sensible to compete in multiple businesses?
  4. How do we create synergies between our businesses?

 

Term

 

 

 

Evolution of Diversification in the U.S.

Definition

 

  • 1st form probably vertical integration
    • Ex: GM operated steel plants
  • 1960s: firms entered industries unrelated to core business because of anti-trust restrictions
  • Large number of firms became conglomerates 
    • i.e. corporation involved in many unrelated businesses
  • Conglomerates less common over time, increase in collections of related businesses

 

Term

 

 

 

Portfolio Planning with Diversification

Definition

 


  • Practice of diversified businesses or products based on their relative strengths and market attractiveness
  • Developed as a tool for addressing the challenges of managing multi-business firms

 

Term

 

 

 

 

Categories of Business Units in Portfolio

Definition

 

  • Stars: High competitive position/market share, High industry attractiveness or growth rate

  • Cash Cows: High competitive position/market share, Low industry attractiveness or growth rate
    • Revenue should be used to develop stars or problem children

  • Problem Children: Low competitive position/market share, High industry attractiveness or growth rate

  • Dogs: Low competitive position/market share, Low industry attractiveness or growth rate
    • Should be sold

 

Term

 

 

 

 

Limitations and Benefits of Portfolio Planning

Definition

Limitations

 

  • No economic logic to help in deciding what businesses to enter in the first place
  • No help in identifying synergies across businesses
  • No help in evaluating resources/capabilities as sources of success in business
Benefits
  • Helps in summarizing what firm is doing and trade-offs that it is making

 

Term

 

 

Valuable Diversification

Definition

 

  • Does not create shareholder value in and of itself, could dissipate value 
  • Potential Value Creators
    • Geographic Diversification
    • Horizontal Diversification
    • Vertical Diversification/Integration

 

Term

 

 

 

Geographic diversification

Definition

 

  • "Internationalization": entering new markets in other parts of the world
  • Expand into new geographic arenas without altering its business model
  • Benefits firms with high R&D costs (pharmaceuticals)
  • Ex: Wal-Mart expanded into Europe

 

Term

 

 

 

Horizontal Diversification

Definition

 

  • Extend to which firm participates in related market segments or industries outside its existing value-chain activities
  • Key is relatedness of different businesses in corporate portfolio
  • Ex: Coke and Pepsi expanded into water, Brinker International expanded with Maggianos, Mac Grill and Chili's

 

Term

 

 

 

Vertical Diversification

Definition

 

  • When a firm vertically integrates
  • Ex: Pulte Homes Inc. created Pulte Mortgage LLC

 

Term

 

 

 

Sources of Benefits from Diversification

Definition

 

  • Economies of Scope Synergies
  • Revenue-Enhancement Synergies

 

Term

 

 

 

Economies of Scope Synergies

Definition

 

  • HELP THROUGH LOWER COSTS
  • Lower price of a common resource by combining purchases
  • Share manufacturing capacity to reduce average costs
  • Share marketing resources to reduce average marketing costs
  • Share distribution to reduce average distribution costs
  • Can be achieved across all value chain activities

 

Term

 

 

 

Revenue Enhancement Synergies

Definition

 

  • Bundle products to appeal to new customers
  • Cross sell to existing customers

 

Term

 

 

 

Related vs. Unrelated Diversification

Definition

 

  • Unrelated: when company owns many businesses in very disparate industries
    • Nimbleness, Response time
    • In dynamic markets, diversification can hinder competitiveness
  • Related: when company owns fewer businesses in similar/related industries
    • Economies of Scope, Revenue Enhancement

 

Term

 

 

 

Executives Ulterior Motives for Diversification

Definition

 

  • Risk reduction-earnings fluctuations
    • More efficient for investors to diversify themselves
  • Empire building
    • Rarely results in higher shareholder value or margins
  • Compensation
    • Acquisition motivated by executive pay

 

Term

 

 

 

 

Strategies for entering attractive new businesses

Definition

 

  • Focus on a niche
    • Ex: Red Bull vs. Coke and Pepsi, Under Armour
  • Leverage existing resources and capabilities
    • Ex: Wal-Mart leveraged distribution capabilities to enter soft drink industry (Sam's Choice cola)
  • Use a revolutionary strategy

 

Term

 

 

 

Diversification is more likely to contribute to competitive advantage when..

Definition

 

  • Firm has VRINE resources that are also general
  • Firm has the right structures, systems and processes given its level of diversification

 

Term

 

 

 

Corporate Strategy Implementation Issues

Definition

 

  • Coordination Systems
    • More relatedness means greater need for mechanisms for coordinating across business units
    • More resource sharing across business units
  • Compensation Systems
    • Low relatedness: managers based on performance of their business unit
    • High relatedness: managers based on performance of whole corporation
  • Corporate-Level Oversight
    • Low relatedness: Corporate oversight resources are less needed
    • High relatedness: needed to facilitate resource sharing and cooperate

 

Term

 

 

 

Strategic Alliance

Definition

 

  • Relationship in which two or more firms combine resources and capabilities in order to enhance the competitive advantage of all parties
  • One vehicle for realizing a strategy

 

Term

 

 

 

Benefits of Strategic Alliances

Definition

 

  • Companies which participate most actively in alliances outperform the least active firms by 5-7%
  • Share investments and rewards
  • Reduce risk
  • Reduce uncertainty
  • Focus resources on what each partner does best
  • Foster economics of scale and scope

 

Term

 

 

 

 

Benefits of Strategic Alliances: Joint Investment

Definition

 


  • Increase returns by encouraging firms to make investments they'd be otherwise unwilling to make
  • Ex: Wal-Mart supplier becomes willing to invest in new equipment

 

Term

 

 

 

 

Benefits of Strategic Alliances: Complementary Resources

Definition

 

  • Opportunity to create a stock of resources that is unavailable to competitors, can create shared advantage
  • Ex: Nestle and Coke combined resources to officer canned tea and coffee products

 

Term

 

 

 

Benefits of Strategic Alliances: Knowledge Sharing

Definition

 

  • Consistent information-sharing routines enhances learning
  • Ex: John Deere exchanges key employees with alliance partner Hitachi

 

Term

 

 

 

 

Benefits of Strategic Alliances: Informal Management

Definition

 

  • Alliances may make it more cost effective to manage an activity than arm's-length transactions or acquisitions

 

Term

 

 

 

Alliances may serve to build a competitive advantage if..

Definition

 

  1. Rivals cannot ascertain what generates the returns because of casual ambiguity surrounding the alliance
  2. Rivals can figure out what generates the returns but cannot quickly replicate the resources owing to time decompression diseconomies
  3. Rivals cannot imitate practices or investments because they are missing complementary resources and current costs associated with prior investments are now prohibitive
  4. Rivals cannot find a partner with the necessary complementary strategic resources
  5. Rivals cannot access potential partners' resources because they are indivisible 
  6. Rivals cannot replicate a distinctive and socially complex institutional environment that has the necessary formal and informal controls that make managing alliances possible

 

Term

 

 

 

Motivation for Alliances: 1970s

Definition

 

  • Product performance focus
    • Produce with latest technology
    • Market beyond national borders
    • Sell product stressing performance

 

Term

 

 

 

Motivation for Alliances: 1980s

Definition

 

  • Position Focus 
    • Build industry stature
    • Consolidate position
    • Gain economies of scale and scope

 

Term

 

 

 

 

Motivation for Alliances: Post 2000

Definition

 

  • Learning and Capabilities Focus
    • Ensure constant stream of new prospects with advancing technology
    • Proactively maximize delivered value
    • Optimize total cost by product/customer segment
    • Gain advantage in response to changing conditions and responsibilties

 

Term

 

 

 

General Types of Alliances

Definition

 

  • Joint Venture
    • two firms make equity investments in a theird legal entity
  • Equity Alliance
    • one or more partners assumes a greater ownership interest in either the alliance or other partner
  • Non-Equity Alliance
    • Involves neither the assumption of equity interest nor the creation of separate organizations
  • Consortia (Multi-Party Alliance)
    • Association of several companies and/or government for some definite strategic purpose

 

Term

 

 

 

 

Type of Alliance: Transactional, Non-equity

Definition

 

  • No Linkages beyond Transaction
    • Simple purchase order for commodities, spot transaction
    • Purchase agreements that are renewable annually or every several years
  • Information Sharing
    • Short-term agreements on functions like advertising or manufacturing to achieve efficiencies
      • Ex: Anheuser Busch contract Miller
    • Agreements to distribute products or services 
  • Asset, Resource, and Capability Sharing
    • Short-term agreements on functions like advertising or manufacturing 
    • Cross-licensing like that between Disney and Pixar or R&D partnerships like Millennium Pharmaceuticals and its smaller partners

 

Term

 

 

 

Type of Alliance: Non-equity, long-term

Definition

 

  • No Linkages Beyond Transaction
    • Outsourcing
  • Information Sharing
    • Many technology standards consortia
  • Asset, Resource, and Capability Sharing
    • Ex: technology collaborations like the PowerPC chip between Motorola, IBM and Apple

 

Term

 

 

 

 

Type of Alliance: Equity, Long-Term

Definition

 

  • Cross-Equity: Partners take ownership in one party or each other
    • Anheuser-Busch's cross ownership with Kirin in Japan and Modelo in Mexico
  • Shared Equity
    • Stand-alone joint ventures like Dow-Corning

 

Term

 

 

 

 

Type of Alliance: Equity, Permanent

Definition

 

  • Cross Equity
    • Keiretsu in Japan or Chaebols in South Korea
  • Shared Equity
    • Caltrex, which was jointly owned by Chevron and Texaco prior to their merger

 

Term

 

 

 

Types of Alliance Partners

 

Definition

 

  • Rivals
  • New Entrants
  • Suppliers 
  • Customers
  • Substitutes
  • Complementors

 

Term

 

 

 

Vertical Alliance

Definition

 

  • Partner with one or more suppliers or customers
  • Typically done to create more value for the end customer and to lower total production costs along the value chain
  • Ex: Timkin and suppliers

 

Term

 

 

 

 

Horizontal Alliance

Definition

 

  • Partner with a rival or potential competitor to gain access to multiple segments of the industry and reduce risk, improve efficiency, or foster learning
  • Ex: Mondavi and top foreign wine producers

 

Term

 

 

 

Co-opetition

Definition

 

  • The notion that companies are complementers when they make markets and competitors when they divide markets
    • Relationship called a value net
  • Situation in which firms are simultaneously competitors in one market and collaborators in another
  • Purpose: find ways of increasing the total value created by parties in the value net (competitors, customers, complementers, suppliers), not just determining how to compete for industry profits
Term

 

 

 

Risks from Alliances

Definition

 

  • Poor contract management
  • Misrepresentation of resources and capabilities
  • Misappropriation of resources and capabilities
  • Failure to make complementary resources available
  • Being held hostage through specific investments
  • Misunderstanding a partner's strategic intent

 

Term

 

 

 

 

Levers for Increasing the Probability of Alliance Success

Definition

 

  1. Understand the determinants of trust
  2. Be able to manage knowledge and learning
  3. Understand alliance evolution
  4. Know how to measure alliance performance
  5. Create a dedicated alliance function

 

Term

 

 

 

Benefits of Trust

Definition

 

  • Cycle: Dedicated Asset Investments, Knowledge Sharing Routines, Inter-Firm Trust
  • Trust is one party's confidence that the other party in the exchange relationship will fulfill its promises and commitments and will not exploit its vulnerabilities
  • Doesn't adhere to alliances and classical economic perspective but..
    • Trust lowers transaction costs, search costs, contracting costs, monitoring costs, enforcement costs
    • Trust increases knowledge sharing and increases investments in dedicated assets

 

Term

 

 

 

Relational Quality of Trust

Definition

 

  • Initial Conditions 
  • Negotiation Process
  • Reciprocal Experiences
  • Outside Behavior

 

Term

 

 

 

Components of a Dedicated Alliance Function

Definition

 

  • Alliance Business Case
  • Partner Assessment and Selection
  • Alliance Negotiation and Governance
  • Alliance Management
  • Assessment and Termination 

 

Term

 

 

 

Questions to ask when determining when partners fit

Definition

 

  • Strategic fit?
  • Resource fit?
  • Cultural fit?
  • Structural fit?

 

Term

 

 

 

Merger vs. Acquisition

Definition

 

  • Merger
    • Consolidation or combination of one firm with another
  • Acquisition
    • The purchase of one firm by another so that ownership transfers

 

Term

 

 

 

Motivations for Mergers and Acquisitions

Definition

 

  1. Managerial Self-Interest (Managerialism): Manager can conceivably make acquisitions and even willingly overpay them to maximize their own interests at the expense of shareholder wealth
  2. Hubris: Managers may make mistaken valuation and have unwarranted confidence in their valuation and in their ability to create value because of pride, over-confidence and arrogance
  3. Synergy: Managers may believe that the value of the firms combined can be greater than the sum of the two independently
    1. Reduced threats, Increased market power and access, Realized cost savings, Increased financial strength, Sharing and leveraging capabilities

 

Term

 

 

 

Why Mergers and Acquisitions enhance shareholder value..

Definition

 

  1. Reducing specific threats
    1. Backward integration to reduce threats from powerful suppliers
  2. Increasing market power and access to markets
  3. Cost savings
    1. Economies of scope (or scale economies)
  4. Enhancing financial strength
  5. Sharing and leveraging capabilities
    1. Absorbing/assimilating target firm's resources and capabilities, especially target firm's knowledge
    2. Combining firm resources/capabilities to create valuable and rare bundle of resources

 

Term

 

 

 

 

Criticism of Acquisitions as a Vehicle

Definition

 


 

  • Partly by-product of highly visible examples of acquisitions that turned out badly  
  • Examples
    • Quaker's acquisition of Snapple
    • AT&T's acquisition of NCR
    • AOL's acquisition of Chrysler

 

 

Term

 

 

 

Benefits and Drawbacks of Acquisitions over Internal Development

Definition

Benefits

 

  • Speed
  • Critical Mass
  • Access to complementary assets
  • Reduced competition
Drawback
  • More expensive
  • Inherit adjunct businesses
  • Cannot spread commitment over several years (one-time, all-or-nothing decision)
  • Potential for organizational conflict

 

Term

 

 

 

Types of Acquisitions: Vertical 

Definition

 

Objectives
  • To secure reliable supply of important input
  • Create more value for end customers by improving upstream or downstream activities
  • Reduce total production costs across the value chain

 

Term

 

 

 

 

Types of Acquisitions: Horizontal

Definition

 

  • Goal is typically to expand acquirer's product offerings

 

Term

 

 

 

Type of Acquisitions: Complementary

Definition

 

  • Goal is to acquire complementary resources/capabilities that can benefit acquiring firm or both firms
    • Ex: Best Buy's acquisition of Geek Squad

 

Term

 

 

 

Classification of Acquisitions: Overcapacity

Definition

 

  • Example
    • DaimlerChrysler merger
  • Objectives
    • Eliminating capacity, gaining market share and increasing efficiency

 

Term

 

 

 

Classification of Acquisition: Roll-up

Definition

 

  • Example
    • Service Corporation International more than 100 acquisitions of funeral homes
  • Objectives
    • Efficiency of larger operations 
      • Economies of scale, superior management

 

Term

 

 

 

 

Classification of Acquisitions: Product/Market Extension

Definition

 

  • Example
    • Pepsi's acquisition of Gatorade
  • Objectives
    • Synergy of similar but expanded product lines or geographic markets

 

Term

 

 

 

Classification of Acquisitions: R&D

Definition

 

  • Example
    • Intel's dozens of acquisitions of small high tech companies
  • Objectives
    • Short cut to innovation by buying it from small companies

 

Term

 

 

 

Classification of Acquisitions: Industry Convergence

Definition

 

  • Example
    • AOL's acquisition of Time-Warner
  • Objectives
    • Anticipation of new industry emerging; culling resources from firms in multiple industries whose boundaries are eroding

 

Term

 

 

 

Acquisitions: Pricing and Premiums

 

Definition

 

  • Factors in determining offer price
    • Current market value
      • Stock price, number of outstanding shares
    • Intrinsic value
      • Value of target for a particular buyer/owner
    • Purchase price = price actually paid
      • Almost invariably exceeds market price prior to news of potential acquisition
  • Premium
    •  
      • Difference between market value before news of acquisition and purchase price
      • Recent Avg: 30-45%
  • Walk-away price
    • Price at which acquirer would nix a prospective deal 
    • Acquirers should set a walk-away price early in the process

 

Term

 

 

 

Problems of Acquisition Premiums: The Synergy Trap

Definition

 

  1. Premiums increase the level of returns the combined businesses must extract
  2. The longer it takes to implement performance improvements, the more likely the acquisition will fail

 

Term

 

 

 

The Acquisition Process

Definition

 

  • Decision-Making Process Problems
    • 1. Idea
    • 2. Justification due diligence, negotiation
      • Strategic Assessment: process of determining how an acquisition will contribute to overall strategy and competitive position.
  • Integration Process Problems
    • 3. Acquisition integration
    • 4. Results

 

Term

 

 

 

Two Issues of Integrating and Implementing an Acquisition

Definition

 

  • Extent to which strategic interdependence is rationale for acquisition 
    • Greater strategic interdependence argues for greater integration
  • Extent to which acquired firm needs autonomy to continue to be valuable
    • Valuable employees of acquired firm may leave if too much autonomy is lost

 

Term

 

 

 

Lessons from Successful Serial Acquirers

Definition

 

  • Implementation is a process not an event so start early
  • Integration is a full-time job
  • Make key decisions quickly
    • Greater "efficiencies" is an explicit goal of many acquisitions
  • Integration should address cultural as well as technical issues

 

Term

 

 

 

 

M&A and Industry Life Cycle

Definition

 

  • Introduction
    • Tends to be R&D and product-related
  • Growth
    • Tends to be for acquiring products that are proven and gaining acceptance
  • Maturity and Decline
    • Primarily for dealing with over capacity in the industry

 

Term

 

 

 

Hui: Model Company for Strategic Implementation 

Definition

 

  1. Structure: A flat structure facilitates the flowing of information and fast decision-making 
  2. Systems: Systems are in place to support the firm's growth strategy through innovation
  3. People: Selection and retention of people are rigorously managed
  4. People (Culture): Selection and retention reinforces a culture that values innovation

 

Term

 

 

 

Strategic Formulation and Implementation

Definition

 

  • Formulation: The central, integrated, externally oriented concept of how we will achieve our objectives
  • Cycle between Formulation and Implementation 
    • Decision-Making: Arenas, Staging, Vehicles, Differentiators, Economic Log
    • Implementation Levers and Strategic Leadership

 

Term

 

 

 

When a firm is experiencing difficulties or success

3 questions

Definition

 

Difficulties
  1. Is its strategy flawed?
  2. Is the implementation of its strategy flawed?
  3. Are both strategy and implementation flawed?
Success
  1. Is its strategy well developed?
  2. Is the implementation of its strategy well done?
  3. Are both strategy and implementation on track?

 

Term

 

 

 

Examples of the "Knowing-Doing" Gap

Internal and External Resistance

Definition

 

Internal: Business units, Culture (IS KEY)
  • SAP attempted to launch consulting service to supplement its core technology offering but failed to align with SAP Culture
    • SAP implementations are complex and required intimate knowledge of the product and the company
External
  • When Compaq tried to copy Dell's direct-sales model, it met stiff resistance from Comp USA, Best Buy, and other retailers
    • Failed merger with HP

 

Term

 

 

 

Key Facets of Strategic Implementation 

Definition

 

  • Intended Strategy becomes Realized and Emergent Strategies through Implementation Levers and Strategic Leadership
  • Implementation Levers
    1. Organization Structure
    2. Systems and Processes
    3. Peoples and Rewards
  • Strategic Leadership
    1. Lever and resource allocation decisions
    2. Communicating the strategy to stakeholders

 

Term

 

 

 

Implementation Levers: Organizational Structure

Definition

 

  • Gets most attention, most visible 
  • Relatively stable arrangement and division of responsibilities, tasks, and people within an organization 
  • Framework that management has devised to divide tasks, deploy resources, and coordinate departments
  • Two Essential Functions
    1. Ensures control of resource allocation
    2. Coordinates information, decisions, activities of employees

 

Term

 

 

 

Influence between Structure and Strategy

Definition

 

  • Traditional view is that strategy determines structure
    • Structure should be aligned with strategy
  • BUT structure can also shape strategy
    • Ex: Air Liquide, locate personnel at client sites

 

Term

 

 

 

Forms of Organizational Structure

Definition

 

 

1. Functional
2. Multi-divisional

3. Matrix

4. Network

5. Partnerships

6. Franchises

 

Term

 

 

 

Organizational Structure: Functional

Definition

 

  • Corporate Office
    • Finance
    • Marking/Sales
    • Operations
    • R&D
  • Organizing activities according to the specific functions that a company performs
  • Ex: Platypus Technologies has 30 employees organized into small departments: Finance, Marking, HR and R&D

 

Term

 

 

 

Organizational Structure: Multidivisional

Definition

 

  • Headquarters
    • Business Group: product or geographic region
    • Business Group A: Finance, Marketing, Operations
    • Business Group B: Finance, Marketing, Operations
  • One solution to problems of managing activities in multiple geographic markets or managing multiple products
  • Ex: GM is organized according to product division (GM Trucks, Chevrolet, Buick, Cadillac) 

 

Term

 

 

 

Organizational Structure: Matrix

Definition

 

  • Hybrid between functional and multi-divisional structure
  • Form of organization in which specialists from functional departments are assigned to work for one or more products or geographic units
  • Goal of matrix approach is to get benefits of both functional and divisional ways of organizing

 

Term

 

 

 

Organizational Structure: Network

Definition

 

  • Small, semi-autonomous and potentially temporary groups brought together for a specific purpose
  • Ex: Gore Industries' 6,000 employees spread across the world, work in small teams and are encouraged to seek out colleagues on their own

 

Term

 

 

 

Partnership vs. Franchises

Definition

 

  • Partnerships
    • The company is organized as a group of partners who own shares or units in the corporation
    • Ex: Most law firms
  • Franchises
    • Company not only transfers ownership of local facilities to franchisees but franchisees take on all local management responsibility
    • Ex: Burger King

 

Term

 

 

 

Too much focus on financial accounting performance measures can..

Definition

 

  • Cause managers to lose sight of long-term strategic initiatives
  • Divert attention from other key stakeholders
  • Potential solution: Balanced Scorecard System

 

Term

 

 

 

Implementation Levers: Systems and Processes

Balanced Scorecard (BSC) System 

Definition

 

  • Balanced Scorecard: Generic term for performance measurement and management systems
  • Seek to balance concerns with short-term financial performance and need to pursue longer-term (often intangible) objectives

 

Term

 

 

 

 

Balanced Scorecard System supports..

Definition

 

  • Translating strategy into tangible and intangible performance metrics
  • Using a strategy map to ensure that metrics are aligned with strategy
  • Making Strategy a continuous and dynamic process

 

Term

 

 

 

 

BSC Systems: Four Perspectives on Performance

Definition

 

  • Financial
    • Growth
    • Profitability
  • External Relations
    • Customers/customer satisfaction
    • Other external stakeholders
  • Internal Business Processes
    • Internal processes with implications for shareholders and customers
  • Learning and Growth Perspective
    • Change, innovation, and growth
  • For each perspective you need to develop objectives, measures, targets and initiatives (activities)

 

Term

 

 

 

 

BSC System Strategy Map: Learning and Growth Perspective

Definition

 

  • Organizational Capital
    • Culture
    • Leadership
    • Alignment
    • Teamwork
  • Information Capital
  • Human Capital
  • Managers should indicate what needs to be done in terms of people, product and process development
  • Leads to Internal Perspective

 

Term

 

 

 

 

BSC System Strategy Map: Internal Perspective

Definition

 

  • Operations Management Processes
    • Supply, Production, Distribution, Risk Management
  • Customer Management Processes
    • Selection, Acquisition, Retention, Growth
  • Innovation Processes
    • Opportunity ID, R&D Portfolio, Design/Develop, Launch
  • Regulatory and Social Processes
    • Environment, Safety and Health, Employment, community
  • Leads to Customer Perspective

 

Term

 

 

 

 

BSC System Strategy Map: Customer Perspective

Definition

 

  • Customer Value Proposition
    • Product/Service Attributes
      • Price, Quantity, Availability, Selection, Functionality
    • Relationship
      • Service, Partnership
    • Image
      • Brand
  • Leads to Financial Perspective

 

Term

 

 

 

 

BSC System Strategy Map: Financial Perspective

Definition

 

  • Long-Term Shareholder Value
    • Productivity Strategy
      • Improve Cost Structure
      • Increase Asset Utilization
    • Growth Strategy
      • Expand Revenue Opportunities
      • Enhance Customer Value

 

Term

 

 

 

Implementation Levers: People and Rewards

Definition

 

  • People: focus on people first, strategy second
    • Ex: JetBlue and Southwest Airlines both expend considerable effort making sure new hires will fit the firm
  • Rewards: Serve as a force of control over outcomes or behaviors. Consists of..
    1. Performance evaluation and feedback
    2. Compensation 
      1. Salary, bonuses, stock, promotions, coveted office space
    • Ex: GE which owns several unrelated companies, links division manager pay to the performance of the unit they manage

 

Term

 

 

 

People and Rewards: Positive and Negatives

Definition

Positives

  • Many managers focus on minimizing costs of human resources (typically largest part of operating costs)
  • Stock market tend to respond positively to downsizing
  • Focusing on human capital has positive effects on several dimensions of operational performance
  • Human Capital is key to competitive advantage
    • Retention is key!
Negatives
  • Downsizing is often followed by productivity declines

 

Term

 

 

 

Common Management Follies in Reward Systems

Definition

  • We Hope For..
    • Long term growth
    • Teamwork
    • Setting stretch goals
    • Downsizing
    • Candor
  • But we often reward for..
    • Quarterly earnings
    • Individual effort
    • Achieving basic goals
    • Adding key staff
    • Reporting good news (even if not true)

Term

 

 

 

 

Two Main Responsibilities of Strategic Leadership

Definition

  1. Making substantive implementation lever and resource allocation decisions
  2. Communicating the strategy to key stakeholders
Term

 

 

 

Strategic Leadership: Communicating with Key Stakeholders

Definition
  • Internal
    • Upward
      • Convince top management of a new strategy
    • Downward
      • Enlist support of those who implement 
    • Across
      • Win support of other units within the firm
  • External
    • Outward
      • Win cooperation of external stakeholders including customers and distributors
Term

 

 

 

Three C's of Strategy Communication

Definition

  • Contacts: Need connections with "influential others"
  • Cultural Understanding: Need rich familiarity with organization's culture
  • Credibility: Trustworthiness, reliability and integrity of leadership (of the communicators)
  • When communicating with Key Stakeholders use the three C's in all directions

Term

 

 

 

Corporate Governance

Definition

  • The system by which organizations, particularly business corporations, are direct and controlled by their owners
  • Broadly, determines how all stakeholders influence the corporation
    • i.e. Shareholders, Management, Board, Employees, Society, Environment 

Term

 

 

 

Principals and Agents

Definition

 

  • Principals: Shareholders of a firm
  • Agents: Act on behalf of principals in managing the firm
  • When interests are virtually identical, the agency problem is small and executives do what is in principals' best interests
    • However, interests often do not overlap. Then agents may act to detriment of principals and visa-versa)
      • Ex: Raise salaries and reduce returns

 

Term

 

 

 

Roles and Actions of Board of Directors

Definition

  • Monitoring
    • Executive compensation
    • Executive succession
    • Audit review
  • Advice
    • Counseling CEO
  • Advocacy
    • Relationships with lenders, suppliers and customers
  • These roles and actions are intertwined within the cycle of strategy formulation/implementation and firm performance

Term

 

 

 

Staggered Boards and Board Involvement

Definition

  • Board elections are staggered so the entire Board does not turn over at once
  • Nearly 2/3 of boards today are considered staggered
  • Phantom Board: no involvement in the strategic management process of the firm
  • Active Board: the public (and major stakeholders) have higher expectations for board involvement today

Term

 

 

 

 

Incentive Alignment: Principals vs. Agents

Definition
  • When conflicts of interest arise between principals and agents incentive alignment can solve such problems
  • Example: Company receives a buy-out offer
    • Shareholders (principals) would benefit because price assures a good return on investment
    • Management (agents) resists because they may lose their jobs
    • Incentive Alignment: Boards can include "golden parachute" provisions in manager's compensation packages
Term

 

 

 

Incentive Compensation

Definition

  • Annual Bonus Plans: Oldest form of incentive pay. Board can evaluate executives' performance along multiple dimensions and allocate a year-end cash aware
  • Stock Options: An employee receives the right to buy a set number of shares of company stock at a later date for a predetermined price
  • Other Long-Term Incentives: Long-term bonuses linked to performance over several years. May help executives avoid short-term myopia and focus on long-term

Term

 

 

 

Corporate Control

Definition

  • Corporate Control: The right to choose members of the board of directors of a company and to control all major decisions made by a company
  • Market for Corporate Control: Control over public corporations is traded and this theoretically puts some pressure on managers to perform, otherwise their corporation can be taken over
  • Process: Shareholders elect Board who hire/fires Top Management who directs Corporation

Term

 

 

 

Poor Corporate Governance

Recent Examples of Scandal-Ridden non-U.S. multinationals

Definition


  • Netherlands Ahold Group (grocery stores)
  • Italy's Parmalat (dairy and food products)
  • France Vivendi (entertainment)
  • French-Belgian Firm ELF (petroleum)

Term

 

 

 

Corporate Governance: US vs Japan

Definition

  • Owner-manager relationship
    • US: Adversarial
    • Japan:Co-operative
  • Manager and shareholder relationship
    • US: Through one company
    • Japan: Through a Keiretsu (group of interlocking companies)
  • Ownership concentration
    • US: Control Function
    • Japan: Monitoring Function

Term

 

 

 

Codes of Governance

Definition

  • Ideals governance standards formulated by regulatory, market and government institutions
  • UK: The Cadbury Code
  • US: Sarbanes-Oxley Act
    • Public Company Accounting Oversight Board