welcome to class 2 overview& corporate governance chapter 1
TRANSCRIPT
Overview of Course & TextbookOverview of Course & Textbook
Course is divided into
Concepts and ActivitiesConcepts and Activities
Concepts are divided into
Management issues and Strategy issues Management issues and Strategy issues
Activities are divided into
Research and Evaluation Research and Evaluation
The Management book presents TMT Competencies,
Strategy Concepts, and Methods for Researching and Assessing Corporate Performance
Book available only as an “E” book:Book available only as an “E” book:
Online: http://www.campus-hq.com/ Online: http://www.campus-hq.com/ Research, Analyze, and Report
Raymond K. Van Ness
ManagementStrategy & Performance
ManagementStrategy & Performance
5th Edition5th Edition
The Management Textbook is divided into three distinct segmentsThe Management Textbook is divided into three distinct segments
Governance & Governance &
Nature of StrategyNature of Strategy
Top Management Top Management Teams (TMT)Teams (TMT)
(1)(1)
Business Environments Business Environments (2)(2)
Creating Value Creating Value
(3)(3)
Corporate Boards Corporate Boards
(4)(4)
Nature of Corporate Nature of Corporate Performance Performance
Introduction to Introduction to Corporate Research Corporate Research
(5)(5)
Research Research Methodologies Methodologies
(6)(6)
Qualitative Research Qualitative Research (7)(7)
Financial Research Financial Research (8)(8)
Demystification of Financial Data; Demystification of Financial Data; Measuring, Assessing, & Reporting Measuring, Assessing, & Reporting
Stakeholder Perspective Stakeholder Perspective
(9)(9)
Financial Demystification Financial Demystification
(10)(10)
Performance Scorecard Performance Scorecard
(11)(11)
Measurements & Meanings Measurements & Meanings
(12)(12)
Performance Scoring & Report Drafting Performance Scoring & Report Drafting (13)(13)
Formalizing The Performance Report Formalizing The Performance Report
(14)(14)
Ch 1, 2, 3, 4 Ch 5, 6, 7, 8 Ch 9,10, 11,12, 13,14
Each Chapter addresses specific questions Chapter 1: Chapter 1: Who is running the company and what should they know
and do?Chapter 2: Chapter 2: What is the business climate and what must firms do to
compete successfully?
Chapter 3: Chapter 3: How do firms add value & whom must they satisfy?
Chapter 4: Chapter 4: What are the mechanisms for overseeing TMT behavior and decision-making?
Chapter 5: Chapter 5: What is corporate research?
Chapter 7: Chapter 7: How do “we” research the social side of performance & TMT’s strategic planning?
Chapter 6: Chapter 6: How can “we” do corporate research and why is it important?
Chapter 8: Chapter 8: What do “we” need to know to investigate financial performance?
Each Chapter addresses specific questions
Chapter 9: Chapter 9: Why do different people assess a firm’s performance differently?
Chapter 10: Chapter 10: Why are financial reports confusing and how can they be made understandable?
Chapter 11: Chapter 11: What is a functional tool for standardizing financial reports?
Chapter 12: Chapter 12: What do all the ratios mean and how can they be used effectively?
Chapter 13: Chapter 13: What is an easy and effective way of quantifying a firm’s performance?
Chapter 14: Chapter 14: What is an easy and effective way for reporting a firm’s performance?
Each person must purchase their own individual online text & analysis software.You MUST have your own copy.
Note: Note: A security code will be provided by the publisher that MUSTMUST be included on your be included on your final final semester project.semester project.
The PSC software will be provided by the publisher when you The PSC software will be provided by the publisher when you acquire your online textbook package.acquire your online textbook package.
5th Edition
Research, Analyze, and Report
Raymond K. Van Ness
ManagementStrategy & Performance
ManagementStrategy & Performance
Corporate GovernanceCorporate Governance
Corporate GovernanceCorporate Governance 1. Consists of t1. Consists of the processes, customs, policies, and proceduresprocesses, customs, policies, and procedures of a firm as well as the governing body governing body that is responsible for its direction, management, and control.
2. Should balance the interests of: Customers, employees, Customers, employees, managers, owners, and other stakeholders managers, owners, and other stakeholders
GOVERNING BODY consists of:GOVERNING BODY consists of: 1. Stockholders1. Stockholders 2. Management2. Management 3. Board of Directors 3. Board of Directors
Vision and Mission
The Vision and Mission statements are anchors that:
1. Communicate "what a firm wants to be"
2. Communicate "what the firm does.“
3. Provide a stable identity analogous to a nation's constitution.
4. Are an expression of a firm’s values and beliefs about its responsibility as a corporate citizen.
5. Clarify the purpose of the organization, help employees bond with the firm, and set a context for understanding management decisions and actions.
Vision
A Vision Statement should be inspiring and highlight a firm's aspirations and values.
It should be uplifting and evoke positive emotions.
It defines "what a firm wants to be."
Mission
The firm's mission statement clarifies where the firm will focus its attention and highlights its core values and beliefs.
It may emphasize how and why the company plans to compete in specific areas.
In brief, it clarifies "what a firm does."
Strategy
A firm's strategy is the TMTs "how to" plan for fulfilling the organization's mission and accomplishing its goals and objectives.
The strategic plan is an detailed document outlining specific courses of action each with precision and an exact timeline.
It is the map for achieving competitiveness.
It emphasizes its Performance ObjectivesPerformance Objectives
TMTs guide their firms to the achievement of Performance Objectives by:
Motivating the firm's employees
Energizing & leveraging value-producing resources
Developing basic, core, and distinctive competencies
1. Strategic Competitiveness
Strategic Competitiveness Strategic Competitiveness is the result of unique business competencies that enable the firm to perform activities more effectively and efficiently than rivals.
It is the first rung first rung on the performance objective ladder
It means the firm is able to earn disproportionally higher profits than its competitors.
It suggests a firm has a competitive advantage over rival firms.
2. Sustainable Competitive Advantage
Achieving a Sustainable Competitive Advantage means a firm has discovered a method for continuouslycontinuously performing its value generating activities more effectively and efficiently than its rivals.
Sustainable competitive advantage is the second rung second rung on the competitive ladder – it means "commercial staying power."
3. Recurrent Above Average Returns [3. Recurrent Above Average Returns [RAARRAAR]]
Above Average Returns are desirable to investors since they indicate the firm is a better than "average" investment.
Above average returns are those that exceed what investors would normally expect to achieve on similar risk investments.
The ultimate objective is to implement a strategy that enables these AAR to be recurrent.
RAAR is the third rung third rung on the performance objective ladder.
Recurrent Above Average Returns Recurrent Above Average Returns are earned only by firms that have
ACHIEVED ACHIEVED and
SUSTAINED SUSTAINED a competitive advantage for
an extended period of time.an extended period of time.
Remember: Remember: SustainableSustainable = Recurrent = Recurrent PotentialPotential Sustained Sustained = Recurrent = Recurrent AchievementsAchievements
Competitive Advantage, Above Average Returns, and Competitive Advantage, Above Average Returns, and Strategic LevelsStrategic Levels
BUSINESS BUSINESS levellevel::
Competitive Advantage and above average returns at the “business” strategic level = high profits + satisfied customers.
CONGLOMERATE CONGLOMERATE levellevel::
Competitive Advantage and Above Average Returns at the “conglomerate” strategic level = successful & synergistic subsidiary successful & synergistic subsidiary businessesbusinesses. (Portfolio of businesses)
Conglomerate level strategy is also called corporate level strategy
Performance: Theoretical ModelsPerformance: Theoretical Models
Is Performance primarily dependent upon a firm’s competencies and leadership?
Or
Is Performance primarily related to the industry in which a firm competes?
The conflicting ideas are categorized as: (1) The Resource-based View, and (2) The Industry/Organizational View
Conflicting Theories aboutConflicting Theories aboutThe Primary Factors Dictating a Firm’s Success or FailureThe Primary Factors Dictating a Firm’s Success or Failure
In achieving RAARIn achieving RAAR
(1) Resource-based View (R/B Model)(1) Resource-based View (R/B Model)
Assumptions of the R/B modelR/B model:1. Performance objectives are dictated by the firm’s unique
resources and capabilitiesresources and capabilities
2. The internal environment: A firm’s physical, financial, intangible, intellectual, and leadership resources will determine the degree of its success.
In other words, it is not so much the industry that dictates the firm’s ability to produce above average returns as it is the ability to compete within that industry.
(2) Industry/Organizational View (I/O Model)
Assumptions of the I/O modelI/O model:1. External environment imposes pressures and constraintsExternal environment imposes pressures and constraints that
determine strategies leading to above-average returns
2. Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies
3. Resources used to implement strategies are highly mobile across firms
4. Although a firm’s physical, financial, intangible, intellectual, and leadership resources are important, it is primarily the industry in which it competes that will determine the degree of its success
In other words, it is the industry that dictates the firm’s ability to produce above average returns.
TMT TMT – CompetenciesCompetencies
From the R/B Model to the I/O Model –
Competent TMTs are essential
Literacy = Knowledge
Managerial literacy at the TMT level suggests a highly refined knowledge of managing people and strategies.
TMT literacy encompasses knowledge of contemporary theories and practices for the effective deployment of intellectual, physical, and financial resources.
TMTs are expected to have an extensive knowledge of corporate finance and accounting.
[Understand Concepts]
8 Specific spheres of business literacy
• (1) Human resources
• (2) Corporate cultures
• (3) Industry-specific customs, practices, and procedures
• (4) Accounting and finance
• (5) Techniques for the effective utilization of corporate resources
• (6) Systems for assessing progress (qualitative and financial
performance monitors)• (7) Analysis methods (feedback loops)
• (8) Tactical and Strategic planning
Manage = Skills
Management skills or skills-set refers to the technical know-how and the degree of proficiency with the three methods of persuasion.
The TMT must be able to apply what they know – there are many business managers who are considered “knowledgeable" yet they are ineffective.
Inept leaders often have theoretical knowledge but are lacking in one or more of the following management skills:
1. Communication Skills
2. Implementation Skills
3. Interpersonal Skills
4. Persuasion Skills
[Can Apply Concepts]
Skills of PersuasionSkills of PersuasionManagement skills or skills-sets refer to both technical competence Management skills or skills-sets refer to both technical competence
and skills of persuasion. Good managers must not only demonstrate their and skills of persuasion. Good managers must not only demonstrate their knowledge but also master the skills of persuasion. knowledge but also master the skills of persuasion.
AristotleAristotle, the Greek philosopher, identified three methods of persuasion , the Greek philosopher, identified three methods of persuasion and good managers have mastered each:and good managers have mastered each:
•Logos = Persuasion by reasoningLogos = Persuasion by reasoning•Pathos = Persuasion by emotional appealPathos = Persuasion by emotional appeal•Ethos = Persuasion by CharacterEthos = Persuasion by Character
•In other words, even though an individual may be business literate at the highest level, if they cannot persuade, they have not achieved the minimum level of necessary administrative skills.
Ability = Critical Thinking
Critical thinking requires:Intellectual discipline
Elimination of bias
Visualizing situations from a variety of perspectives
Reflecting, reasoning, and communicating conclusions in clear and logical manner.
[Can Apply Concepts with great expertisegreat expertise]
TMT – Responsibilities Embrace the organization's vision and mission
Meticulously analyze the internal and external environments
Set realistic goals and objectives
Craft, implement, and manage tactics and strategies for the continuous achievement of above average returns
The TMT must The TMT must expertlyexpertly execute execute 5 Strategic Management Activities5 Strategic Management Activities
TMT Strategic Management Activities 1. (1. (SWOT)SWOT)
Analyze the (internal & external) environments to assess the firm’sa)a) StrengthsStrengths
b)b) WeaknessesWeaknesses
c)c) OpportunitiesOpportunities
d)d) ThreatsThreats
2. (2. (Strategic IntentStrategic Intent))ReaffirmReaffirm or reestablishreestablish short & long-term goals and objectives
3. (Strategy Formulation)Translate goals and objectives into tactical & strategic action plans
4. (4. (Strategy ImplementationStrategy Implementation))Communicate and activate the tactical and strategic plans
5. (5. (Strategy ManagementStrategy Management) ) Assess interim successes & failures and adjust course as conditions merit
1. Scanning 2. Monitoring 3. Gathering Competitive Intelligence
Core Operating Levels
• Business Level Models (11stst Level Level)
versus
• Conglomerate Level (22ndnd Level Level)
Strategies are significantly different at Strategies are significantly different at different core operating levelsdifferent core operating levels
Core Operating Models Core Operating Models
1.1. First-level Corporations First-level Corporations (business-level model)
Value creating and competitive advantage through: Marketing products and/or services.Marketing products and/or services.
2. Second-level Corporations 2. Second-level Corporations (conglomerate-level model)
Value creating and competitive advantage through: Management of a portfolio of subsidiary companies.
Business-level model Business-level model (First-level)(First-level)Achieving sustainable competitive advantage at the business-level means firms offer products and/or services that are distinctive** and provide profit maximization opportunities.
DISTINCTIVENESS:
1. Provides customers a motive to purchase from a specific firm
2. Proves difficult for competitors to duplicate or imitate.
Four common methods of achieving DISTINCTIVENESSDISTINCTIVENESS:1. Uniqueness of product/service2. Added or special components3. Lower cost levels4. Preferential delivery
1. Low-Cost leadership (perceived as least expensive or best value provider)
2. Differentiation
(providing a unique product or service)
3. Narrow Market Catering [NMC] (offering a product or service not easily available anywhere else)
(often referred to as niche or focus strategy)
Business level strategic formulation is Business level strategic formulation is guided by the firm’s guided by the firm’s competitivecompetitive model. model.
Competitive Models:Competitive Models:
Conglomerate-level model Conglomerate-level model (Second-level)(Second-level)
Competing and achieving sustainable competitive advantage at the conglomerate-level means:
Producing “above average returns” by creating a portfolio of Producing “above average returns” by creating a portfolio of
synergistic businesses that have synergistic businesses that have eacheach achieved competitive achieved competitive advantage at the business-leveladvantage at the business-level
Subsidiary companies benefit other companies in the portfolio when they provide synergistic benefits such as:
(1) Shared knowledge
(2) Operating systems
(3) Facilities
(4) Contact networks, etc.
Conglomerate-level strategists have options such as:
1. Joint ventures
2. Corporate partnering
3. Other types of collaborative activities
HoweverHowever, the most common strategy involves
acquisitions and divestitures acquisitions and divestitures of operating companies.
The strategists can change the basic composition of the parent company simply by diversifying into new lines of business.
Conglomerate-level strategies involve an Conglomerate-level strategies involve an extensive array of options.extensive array of options.
1. Related Diversifications 1. Related Diversifications (Those that are closely related closely related to companies currently in the portfolio)
2. Unrelated Diversifications 2. Unrelated Diversifications (Those that are significantly different significantly different from previously owned subsidiaries)
Corporate diversifications through Corporate diversifications through acquisitions are divided into:acquisitions are divided into:
Homework:Homework:(1)(1) Read Read Chapter 2Chapter 2 in your online textbook in your online textbook(2)(2) Elect team officers: President, VP, SecretaryElect team officers: President, VP, Secretary(3)(3) Study online lecture notes!!!!Study online lecture notes!!!!
Point of emphasis:Point of emphasis:1. Core Operating Models are Business-level and Conglomerate-level
2. Competitive Models relate to Business-level companies and include strategies such as cost leadership, differentiation, and niche marketing
3. 3. GoalsGoals are a general are a general description of a performance aimdescription of a performance aim
4. 4. Objectives are the specificObjectives are the specific target within a goal or set of goals. target within a goal or set of goals.
End Corporate GovernanceEnd Corporate Governance