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Management Exam 2 Mercer University Management Professor Freeman Fall 2011


Specific, Measurable, Attainable, Realistic, Timely

How to make a plan that works

1. Set Goals,
2. Develop Commitment,
3. Develop effective action plans,
4. Track progress toward goal achievement, 5.Maintain flexibility

Tactical Plans

Plans created and implemented by middle managers that specify how the company will use resources, budgets, and people over the next six months to two years to accomplish specific goals within its mission

Management by objectives (MBO)

A four-step process in which managers and employees discuss and select goals, develop tactical plans, and meet regularly to review progress toward goal accomplishment

Operational Plans

Day-to-day plans, developed and implemented by lower-level managers, for producing or delivering the organization's products and services over a 30-day to six month period

Single Use Plans

plans that cover unique, one-time-only events

Standing Plans

Plans used repeatedly to handle frequently recurring events.

Rational Decision Making

A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions.


A gap between a desired state and an existing state

Decision Criteria

The standards used to guide judgments and decisions

6 steps of the Rational Decision-Making Process

1. Define the problem
2. Identify decision criteria
3. Weight the criteria
4. Generate alternative course of action
5. Evaluate each alternative
6. Compute the optimal decision

Strategic Plans

Overall company plans that clarify how the company will serve customers and position itself against competitors over the next two to five years


A barrier to good decision making caused by pressure within a group for members to agree with each other

C-type conflict

Cognitive conflict, disagreement that focuses on problem- and issue- related differences of opinion

A-type conflict

Affective conflict, disagreement that focuses on individual or personal issues

Benefits of Planning

1. Intensified effort
2. Increased Persistence
3. Direction
4. Creation of task strategies

Pitfalls of Planning

1. Impending Change
2. Creating a false sense of certainty
3. Allowing planners to plan for things they don't understand

Goal Commitment

The determination to achieve a goal

Options-based planning

maintaining flexibility by making small, simultaneous investments in many alternative plans

Slack Resources

a cushion of extra resources that can be used with options-based planning to adapt to unanticipated change, problems, or opportunities

Purpose Statement

a statement of a company's purpose or reason to exist; often referred to as an organizational mission or vision

Strategic Objective

a statement of a company's overall goal that unifies company-wide effort toward its vision, stretches and challenges the organization, and possesses a finish line and a time frame

Decision making

the process of choosing a solution from available alternatives

Absolute comparison

a process in which each criterion is compared to a standard or ranked on its own merits

Relative Comparison

a process in which each criterion is compared directly to every other


choosing the best alternative


choosing a "good enough" alternative

Devil's advocacy

a decision-making method in which an individual or a subgroup is assigned the role of critic


The assets, capabilities, processes, information, and knowledge that an organization uses to improve its effectiveness and efficiency, create and sustain competitive advantage, and fulfill a need or solve a problem

Competitive Advantage

providing greater value for customers than competitors can

Sustainable competitive advantage

a competitive advantage that other companies have tried unsuccessfully to duplicate and have, for the moment, stopped trying to duplicate

Valuable Resources

resources that allow companies to improve efficiency and effectiveness

Resources must be

Imperfectly imitable

Strategy-Making Process

1. Asses Need for Strategic Change
2. Conduct a Situational Analysis
3. Chooses Strategic Alternatives

Competitive Inertia

a reluctance to change strategies or competitive practices that have been successful in the past

Strategic Dissonance

a discrepancy between a company's intended strategy and the strategic actions managers take when implementing that strategy

Situational Analysis (SWOT)

an assessment of the strengths and weaknesses in an organization's internal environment and the opportunities and threats in its external environment.
Strengths, Weaknesses, Opportunities, and Threats

Distinctive competence

what a company can make, do, or perform better than its competitors

Core Capabilities

less visible, internal decision-making routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs

Environment scanning

involves searching the environments for important events or issues that might affect the organization such as pricing trends or new products and technology.

Strategic Group

group of companies within an industry that top managers choose to compare, evaluate, and benchmark strategic threats and opportunities

Core firms

central companies in a strategic group

Secondary firms

firms that use strategies related to but somewhat different from those of core firms

risk-avoiding strategy

aims to protect an existing competitive advantage

risk-seeking strategy

aggressive aims to extend or create a sustainable competitive advantage

Strategic reference points

The strategic targets managers use to measure whether a firm has developed the core competencies it needs to achieve a sustainable competitive advantage

Corporate-level strategy

the overall organizational strategy that addresses the question "What business or businesses are we in or should we be in?"

Portfolio Strategy

A corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines.

Companies can grow through

unrelated diversification


The purchase of a company by another company

Unrelated Diversification

Creating or acquiring companies in completely unrelated businesses

BCG Matrix

a portfolio strategy developed by the Boston Consulting Group that categorizes a corporation's businesses by growth rate and relative market share and helps managers decide how to invest corporate funds.


A company with a large share of a fast-growing market

Question Mark

A company with a small share of fast-growing market

Cash Cow

a company with a large share of a slow-growing market


A company with a small share of a slow growing market

growth strategy

to increase profits, revenues, market share, or the number of places (stores, offices, locations) in which the company does business

Stability strategy

stability strategy is to continue doing what the company has been doing, just doing it better. Companies following a stability strategy try to improve the way in which they sell the same products or services to the same customers. Companies often choose a stability strategy when their external environment doesn't change much or after they have struggled with periods of explosive growth.

retrenchment strategy

to turn around very poor company performance by shrinking the size or scope of the business or, if a company is in multiple businesses, by closing or shutting down different lines of the business.

ExThe first step of a typical retrenchment strategy might include making significant cost reductions; laying off employees; closing poorly performing stores, offices, or manufacturing plants; or cutting or selling entire lines of products or services. After cutting costs and reducing a business's size or scope, the second step in a retrenchment strategy is recovery


the strategic actions that a company takes to return to a growth strategy.

Industry-Level Strategies

"How should we compete in this industry?"

Character of the rivalry

is a measure of the intensity of competitive behavior between companies in an industry.

Ex. Is the competition among firms aggressive and cutthroat, or do competitors focus more on serving customers than on attacking each other? Both industry attractiveness and profitability decrease when rivalry is cutthroat.

The threat of new entrants

is a measure of the degree to which barriers to entry make it easy or difficult for new companies to get started in an industry

Ex. If new companies can easily enter the industry, then competition will increase and prices and profits will fall. On the other hand, if there are sufficient barriers to entry, such as large capital requirements to buy expensive equipment or plant facilities or the need for specialized knowledge, then competition will be weaker and prices and profits will generally be higher.

The threat of substitute products

is a measure of the ease with which customers can find substitutes for an industry's products or services.

Ex. If customers can easily find substitute products or services, the competition will be greater and profits will be lower. If there are few or no substitutes, competition will be weaker and profits will be higher.

Bargaining power of suppliers

is a measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these inputs.

Ex. When companies can buy parts, materials, and services from numerous suppliers, the companies will be able to bargain with the suppliers to keep prices low.

Bargaining power of buyers

is a measure of the influence that customers have on a firm's prices.

Ex. If a company sells a popular product or service to multiple buyers, then the company has more power to set prices. By contrast, if a company is dependent on just a few high-volume buyers, those buyers will typically have enough bargaining power to dictate prices.

Porter's Five Industry Forces

1. Character of rivalry
2. threat of new entrants
3. threat of substitute products
4. bargaining power of suppliers
5. bargaining power of buyers

Positioning Strategies

1. Cost Leadership
2. Differentiation
3. Focus Strategy

Cost Leadership

means producing a product or service of acceptable quality at consistently lower production costs than competitors so that the firm can offer the product or service at the lowest price in the industry.

Ex. Cost leadership protects companies from industry forces by deterring new entrants, who will have to match low costs and prices. Cost leadership also forces down the prices of substitute products or services, attracts bargain-seeking buyers, and increases bargaining power with suppliers, which have to keep their prices low if they want to do business with the cost leader.


making your product or service sufficiently different from competitors' offerings so that customers are willing to pay a premium price for the extra value or performance that it provides.

Ex. Differentiation protects companies from industry forces by reducing the threat of substitute products. It also protects companies by making it easier to retain customers and more difficult for new entrants trying to attract new customers.

focus strategy

a company uses either cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment.

Ex. Focus strategies typically work in market niches that competitors have overlooked or have difficulty serving.



seek moderate, steady growth by offering a limited range of products and services to a well-defined set of customers.


seek fast growth by searching for new market opportunities, encouraging risk taking, and being the first to bring innovative new products to market.

Ex. Prospectors are analogous to gold miners who "prospect" for gold nuggets (i.e., new products) in hopes that the nuggets will lead them to a rich deposit of gold (i.e., fast growth)


blend the defending and prospecting strategies. They seek moderate, steady growth and limited opportunities for fast growth.

Ex. ________ are rarely first to market with new products or services. Instead, they try to simultaneously minimize risk and maximize profits by following or imitating the proven successes of prospectors


do not follow a consistent strategy. Rather than anticipating and preparing for external opportunities and threats, reactors tend to react to changes in their external environment after they occur.

Ex. _________ tend to be poorer performers than defenders, prospectors, or analyzers. A _______ approach is inherently unstable, and firms that fall into this mode of operation must change their approach or face almost certain failure.

Direct Competition

The rivalry between two companies offering similar products or services that acknowledge each other as rivals and take offensive and defensive positions as they act and react to each other's strategic actions.

Market commonality

The degree to which two companies have overlapping products, services, or customers in multiple markets

Ex. The more markets in which there is product, service, or customer overlap, the more intense the direct competition between the two companies.

Resource similarity

is the extent to which a competitor has similar amounts and kinds of resources, that is, similar assets, capabilities, processes, information, and knowledge used to create and sustain an advantage over competitors

Ex. From a competitive standpoint, ________ means that your direct competitors can probably match the strategic actions that your company takes.

Strategic Moves of Direct Competition

Attack and Response


a competitive move designed to reduce a rival's market share or profits


a countermove, prompted by a rival's attack, designed to defend or improve a company's market share or profit

Adaptive Strategies


Technology Cycles

Begins with the birth of a new technology and ends when that technology reaches limit and dies.

Organizational innovation

The successful implementation of creative ideas in organizations

innovation streams

patterns of innovation over time that can create sustainable competitive advantage

A(n) _________ begins with a technological discontinuity, in which a scientific advance or a unique combination of existing technologies creates a significant breakthrough in performance or function

Technological discontinuity

when a scientific advance or a unique combination of existing technologies creates a significant breakthrough in performance or function

followed by a discontinuous change

discontinuous change

by technological substitution and design competition, the phase of a technology cycle characterized by technological substitution and design competition

Technological Substitution

The purchase of new technologies to replace older ones

Design Competition

competition between old and new technologies to establish a new technological standard or dominant design

Dominant Design

a new technological design or process that becomes the accepted market standard

PS Signals a shift from design experimentation and competition to incremental change

Technological Lockout

when a new dominant design (better technology) prevents a company from competitively selling its product or makes it difficult to do so

Organizational encouragement

when management encourages risk taking and new ideas, supports and fairly evaluates new ideas, rewards and recognizes creativity, and encourages the sharing of new ideas throughout different parts of the company

Supervisory encouragement

when supervisors provide clear goals, encourage open interaction with subordinates, and actively support development teams' work and ideas

Work group encouragement

occurs when group members have diverse experience, education, and backgrounds and the group fosters mutual openness to ideas; positive, constructive challenge to ideas; and shared commitment to ideas.


having autonomy over one's day-to-day work and a sense of ownership and control over one's ideas. Numerous studies have indicated that creative ideas thrive under conditions of freedom.

Removal of Impediments

Internal conflict and power struggles, rigid management structures, and a conservative bias toward the status quo can all discourage creativity

Components of a Creative Work Environment

Challenging Work
Organizational Encouragement
Supervisory Encouragement
Work Group Encouragement
Lack of Organizational Impediments

design iteration

a cycle of repetition in which a company tests a prototype of a new product or service, improves on the design, and then builds and tests the improved product or service prototype


formal project review points used to assess progress and performance.

Multifunctional teams

work teams composed of people from different departments. ____________ accelerate learning and understanding by mixing and integrating technical, marketing, and manufacturing activities

experiential approach to innovation

an approach to innovation that assumes a highly uncertain environment and uses intuition, flexible options, and hands-on experience to reduce uncertainty and accelerate learning and understanding

design iterations, testing, milestones, multifunctional teams, powerful leaders.

Generational change

occurs when incremental improvements are made to a dominant technological design such that the improved version of the technology is fully backward compatible with the older version

supplier involvement

Delegating some of the preplanned steps in the innovation process to outside suppliers reduces the amount of work that internal development teams must do

Compression Approach to innovation

Assumes that innovation is a predictable process, that incremental innovation can be planned, and that compressing the time it takes to complete steps can speed up innovation.

Generational change, Supplier involvement, Shorten the time of individual steps, Overlapping steps

Risk of Not Changing

Organizational declines occurs when companies don't anticipate, recognize, neutralize, or adapt to the internal and external pressures that threaten their survival.

Organizational Decline Stages

Blinded stage
Inaction stage
Faulty action stage
Crisis stage
Dissolution stage

blinded stage

decline begins because key managers fail to recognize the internal or external changes that will harm their organizations

may be due to a simple lack of awareness about changes or an inability to understand their significance. It may also come from the overconfidence that can develop when a company has been successful.

inaction stage

organizational performance problems become more visible, management may recognize the need to change but still take no action

Faulty Action Stage

faced with rising costs and decreasing profits and market share, management will announce belt-tightening plans designed to cut costs, increase efficiency, and restore profits

crisis stage

bankruptcy or dissolution (i.e., breaking up the company and selling its parts) is likely to occur unless the company completely reorganizes the way it does business

At this point, however, companies typically lack the resources to fully change how they run their businesses.

dissolution stage

after failing to make the changes needed to sustain the organization, the company is dissolved through bankruptcy proceedings or by selling assets in order to pay suppliers, banks, and creditors

Change forces

forces that produce differences in the form, quality, or condition of an organization over time

Resistance Forces

forces that support the existing state of conditions in organizations

Resistance to Change

opposition to change resulting from self interest misunderstandings and distrust or a general intolerance for change


getting the people affected by change to believe that change is needed.

Change Intervention

the process used to get workers and managers to change their behavior and work practices


is supporting and reinforcing the new changes so that they stick.

Managing Resistance to Change

- Educate employees
- Communication change-relate information
- Have those affected by change participate in planning and implementing
- Let employees discuss and agree on who will do what after change
- Coercion

Results-driven change

change created quickly by focusing on the measurement and improvement of results

General Electric Workout

a three-day meeting in which managers and employees from different levels and parts of an organization quickly generate and act on solutions to specific business problems

action plan

Specific steps (how)
People (who)
Resources (what)
Time period (when)

Options-based planning

keep options open by making, small simultaneous investments in many alternative plans.

Slack resources

a cushion of resources, like extra time or money, that can be used to address and adapt to unanticipated changes.

Absolute comparisons

when each criterion is compared to a standard or ranked on its own merits.

relative comparisons

each criterion is compared directly to every other criterion.

nominal Group Technique

A decision-making method that begins and ends by having group members quietly write down and evaluate ideas to be shared with the group

Delphi Technique

A group of experts respond to questions and to each other until reaching agreement


a decision-making method in which group members build on each others' ideas to generate as many alternative solutions as possible

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