1-basic financial planning: annual budget

2-forcast based planning 5 yr

3-externally oriented planning: topdown staffer, lower implement

4-strategic management: integrated

*real value: get advantage of "strategic planning" and "organizational learning" that accompanies a future orientation

an organization adjusts defensively to a changing environment and uses knowledge offensivley to improve the fit between itself and its environment. People at all levels becoming involved in providing input into strategic decisions.  

*Learning Organization: an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights

1)environmental scanning: SWOT; identify strategic factors
2)strategic formulation: missions, objectives (end results of planned activity), strategies (corporate, business, or functional), policies (guidelines for decision making); long-term
3)strategic implementation: programs, budgets, procedures
4)evaluation and control: performance (actual results)

managerial decisions and actions that determines the long-run performance or a corporation. Includes:

-environmental scanning (internal/external)
-strategy formulation ( strategic or long range planning)
-strategy implementation
-evaluation and control

**emphasizes the monitoring and evaluating of external opportunities and threats in light of a corporation's strengths and weaknesses

>results in clearer sense of strategic vision for the firm, sharper focus on what is strategically important, and improved understanding or rapidly changing environment

Strategic Diamond:

Hambrick and Fredrickson

**Discussion Question on Test**!!

1. Arena: Where will we be active?

2. Vehicles: How will we get there?

3. Differentiators: How will we win in the marketplace?

4. Staging: What will be our spped and sequence of moves?

5. Economic logic: How will we obtain our returns?

1. setting corporate strategy, overall direction, mission, vision

2. hiring and firing the CEO and top management

3. reviewing and approving the use of resources

4. caring for shareholder interests

**Four most important issues boards should address are corporate performance, CEO succession, strategic planning, and corporate governance.

**Direct affairs not manage them; act with Due Care

Monitor

Evaluate and Influence

initiate and determine

**Involvement positively related to a corporation's financial performance and its credit rating

affiliates

retired

family

the inclusion of a corporation's workers on its board, began only recently in the United States.

Founded in Germany in with two-tiered system

• a supervisory board elected by shareholders and employees to approve or decide corporate strategy and policy
• a managment board appointed by the supervisory board to manage the company's activies. 

occurs when two firms share a director or when an executive of one firms sit on the board of a second firm.

**an indirect interlock occurs when two corporatons have directors who also serve on the board of a third firm, such as a bank.

**useful for gaining both inside info ab an uncertain environment and objective expertise ab potential strategies and tactics.

• ownership structure and influence
• financial stakeholder rights and relations
• financial transparency and information disclosure
• board structure and processes

leader who provides change and movement in an organization by providing a vision for that change. Three key characteristics:

• The CEO articulates a strategic vision for the corporation
• The CEO presents a role for others to identify with and to follow
• The CEO communicates high performance standards and also shows confidence ini the followers abilities to meet these standards.

1. Mission statement

purpose or reason for the organization's existence...

-who...they are now

-what is the firm providing to society

-how it does business

 **Vision...who they would like to become.

2. Objectives

1. Programs

statement of the activities or steps needed to acmplish a single-plan use; makes strategy action-oriented; Beginnng new research effort, changing companys internal culture

2. Budget

statement of a corporations programs in dollars; lists the cost of each program; corporations demand %return on investment; ultimately ensures programs increase shareholder value.

3. Procedures

sequential steps that describe in detail how particular task or job is to be done; activites that must be done in order to carry out programs. 

activities and performance results are monitored so that actual performance can be compared with desired performance. 

Performance...the end result of activities. 

something that acts as a stimulus for a change in strategy such as:

-New CEO

-External interventaion (bank refuses to approve loan

-Threat of a change in ownership

-Performance gap (performance does not meet expectations)

-Strategic inflection point (major change takes place due to the introduction of new technologies, change in customer values. 

• Rare: unusual and have no precedent to follow
• Consequential: commit resources and demand commitment of people at all levels
• Directive: set precedent

• Entrepreneurial: focus on opportunites-problems are secondary. Guided by leaders vision; goal is growth
• Adaptive Mode: reactive solutions to existing problems; strategy is fragmented; bargaining of priorities; developed to move organization incrementally
• Planning Mode:proactive search for new opportunites adn the reactive solution of existing problems; involves the systematic gathering of appropriate info for situation analysis, the generation of feasible alternative strategies, the rational selection of the most appropriate
• Logical Incrementalism: synthese of the planning, adaptive, and to lesser extent environmental. Organization probes the future, experiments and learn for a series of partial commitments rather than through global formulations; flexible; ambiguity

=profit maximization!!! >a return to a laissez-faire worldwide economy with a minimum of government regulation, Friedman argues against the concept of social responsibility. Manager who acts "responsibly" is spending the shareholder's money for a general social interest; acts from motives other than economic which may harm the very society the firm is trying to help; social costs=less efficient..to compensaton, prices go up or R&D gets postponed. 

**use resources, engage in activities design to increase profits, stay inside the rules of the game, engages in open/free competition w/o deception/fraud. 

• Economic: to produce goods/services of value to society so that the firm may repay its creditors and shareholders.
• Legal: responsibilities are defined by gov't in laws that management is expected to obey. 
• Ethical: responsibilities of an organization management are to follow the generally held beliefs about behavior in society. 
• Discretionary: responsibilities are the purely voluntary obligations a corporaton assumes

**In order of priority. Economic and legal align with Friedman but goes further with CSR of ethical/discretionary. 

the identification and evaluation of corporate stakeholders. Three step process:

• identify primary stakeholders, those who have a direct connection with the corporation and who have sufficient bargaining power to directly affect corporate activities. Primary stakeholders are directly affected by the corporation and usually include customers, employees, suppliers, shareholders, and creditors. Covered by written/verbal agreement
• identify the secondary stakeholders-those who have only an indirect stake in the corporation but who are also affected by corporate activities; nongovernmental organizations, activists, local communites, trade associations, competitiors, governments...no ethical or legal implications, do not affect short-term profitability but their actions could impact reputation
• to estimate the effect on each stakeholder group from any particular strategic decision; for firm to uphold ethical/discretionary responsibility, must take into account needs/wants of secondary stakeholders.

Once stakeholders impact have been identified...

-Rule based v relationship based: relationship-based tend to be less transparent and have a higher degree of corruption than do rule-based countries

-differences in values between business people and key stakeholders

claims that morality is relative to some personal, social, or cultural standard and that there is no method for deciding whether one decision is better than another.

• naive: all moral decisions are deeply personal and that individuals have the right to run their own lives; individuals should be allowed to interpret situations and act based on their moral values
• Role: social roles carry them certain obligations to that role
• Social Group: morality is simply a matter of following the norms of an individual's peer group; decision is legitimate if it is common practice
• cultural: morality is relative to a particular culture, society, community. People should understand other cultures and not judge.

individual moves from total self-centeredness to a concern for universal values

1. preconventional level: concern for the self, small children; evaluate behaviors on the vasis of personal interest-avoiding punishment or quid pro quo
2. conventional level: considerations of society's laws and norms. actions are justified by an external code of conduct
3. principled level: a person's adherence to an internal moreal code, looks beyond norms or laws to find universal values/principles.  

specifies how an organization expects its employees to behave while on the job

• clarifies company expectations of employee conduct in various situations
• makes clear that the company expects its people to recognize the ethical dimensions in decisions and actions

morality

1. Utilitarian approach--actions and plans should be judge by their consequences, acts to greatest benefit of society and produce the least harm or lowest cost. H/e benefits/cost are hard to recognize. stakeholders that have the most power (ability to affect the company)

legitimacy ( legal or moral claim on company resources)

urgency (demand for immediate attention) are given priority. 

2. Individual rights approach--human beings have certain fundamental rights that should be respected in all decisions. a decision/behavior should be avoided if it interferes with the rights of others.

3. Justice approach--decision makers be equitable, fair and impartial in the distribution of costs and benefits to indiv/groups; liberty, retributieve justice (punishment equal to offense), and compensatory justice (wrongs should be compensated in proportion to the offense) 

immanuel kant

p.133

categorical imperatives 

• a person's actions are ethical only if that person is willing for that same action to be taken by everyone who is in a similar situation
• a person should never treat another human eing simply as a means but always as an end. 

mankind's social system that includes general forces that do not directly touch on the short-run activites of the organization that can, and often do, influence its long-run decisions...these factors affect multiple industries and are as follows:

• Economic forces: regulate the exchange of materials, money, energy, and informations
• Technologoical forces: generate problem-solving interventions
• Political/legal forces: allocate power and provide constraining and protecting laws and regulations
• sociocultural forces: that regulate the values, mores, and customs of society

elements/groups that directly affect a corporation and in turn are affected by it. These are governments, local communities, suppliers, competitiors, customers, creditors, employees/labor unions, special-interest groups, and trade associations. The industry in which the firm operates. 

Industry Analysis: an in-depth examination of key factors within a corporations task environment

• increasing environmental awareness
• growing health consciousness
• expanding senior markets
• imact of Generation Y Boomlet
• Declining mass markets
• changing pace and location of life
• changing household composition
• increasing diversity in workplace

interest group analysis

community analysis

market analysis

competitor analysis

supplier analysis

government analysis

>selection of strategic factors<

Michael Porter's Five Force Model

(+one)

"The collective strenth of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long-run return on invested capital."

• Treat of new entrants
• rivalry among existing firms
• threat of substitute products or services
• bargaining power of buyers
• bargaining power of suppliers
• relative power of other stakeholders (government)

*stronger these forces, the more limited companies are in their ability to raise prices and earn greater profits

depends on the presence of entry barriers and the reaction that can be expected from existing competitors. Entry barrier is an obstruction that makes it difficult for a company to enter a market.

• economies of scale
• product differentiation
• capital requirements
• switching costs
• access to distribution channels
• cost disadvantages independent of size
• Government policy

• number of competitors
• rate of industry growth
• product/service characteristics
• amount of fixed costs
• capactiy
• height of exit barriers
• diversity of rivals

1. pressure for coordination within the MNCs operating in that industry
2. pressure for local responsiveness on the part of individual country markets

pressure for coordination is strong, pressure for local responsive weak...industry tend to become global

Regional industries: MNCs primarily coordinate their activities within regions, such as the Americas or Asia

a category of fimrs based on a common strategic orientation and a combination of structure, culture, and processes consistent with that strategy. 

1. Defenders: limited product lines that focus on improving the effiency of their existing operations. Do not innovate into new areas
2. Prospectors: broad product lines that focus on product innovation and market opportunities. Emphasize creativity over efficiency
3. Analyzers: corporations that operate in at least two different product-market areas; stable areas--efficiency is emphasized; variable areas--innovation is emphasized
4. Reactors: corporations that lack a consistent strategy-structure-culture relationship

extrapolation--extnsion of present trends into the future

Time-series methods--attempt to carry a series of historical events forward into the future

Brainstorming--non-quantitiative approach that requires a simply the presence of people with some knowldege of the situation to be predicted. 

Expert opinion--noquantitative in which experts in a particular area attempt to forecast likely developments

Statistical modeling--quantitative technique that attempts to discover causal or at least explanatory factors that link two or more time series together

Prediction markets--small scale electronic markets, frequently open to any employee, that te payoffs to meaureable future events, such as sales data, applications

Scenario writing--most widely used, are focused descriptions of different likely futures presented in a narrative fashion. 

EFAS

(External Factors Analysis Summary)