Term
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Definition
company's reason for existing.
Missions tend to be most effective when they consist of a single sentence.
Missions tend to be stated in general terms; setting specific objectives in the mission statement can limit an entity's ability to respond to a changing marketplace. |
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Definition
| plan for achieving that mission |
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Term
| What is the appropriate budgeting method for a company? |
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Definition
| depends upon that organization's situation. |
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Term
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Definition
| sets overall objectives for an entity and guides the process of reaching those objectives; responsibility of upper management |
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Term
| What is the planning horizon for strategic planning? |
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Definition
| strategic management and strategic planning |
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Definition
| summarizes the entity's reason for existing and provides the framework for formulation of the company's strategies |
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Definition
| what the company does well in or has a great abundance of |
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Definition
| an entity gains a competitive advantage in the marketplace by developing one or more of these, since many firms have the same core competencies |
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Definition
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| opportunities and threats |
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Definition
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Term
| How are strategic plans implemented? |
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Definition
| through the execution of component plans at each level of the entity (incentive systems and employee performance evaluations must be designed so that they encourage employees to focus their efforts on achieving the entity's objectives. |
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Term
| strategic controls and feedback |
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Definition
| used to monitor progress, isolate problems, and take corrective action. Over the long term, feedback is the basis for adjusting the original mission and objectives. |
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Term
| Porter's Five Forces Analysis |
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Definition
threat of new entrants
bargaining power of customers
bargaining power of suppliers
availability of substitutes
level of rivalry |
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Term
| Intensity of rivalry depends on: |
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Definition
Economies of scale (and learning curve effects) are not significant.
Brand identity of existing products is weak.
Costs of switching suppliers are low.
Existing firms do not have the cost advantages of vertical integration.
Product differences are few.
Access to existing suppliers is not blocked, and distribution channels are willing to accept new products.
Capital requirements are low.
Exit barriers are low.
The government's policy is to encourage new entrants. |
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Term
| Most favorable industry condition exists when... |
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Definition
entry barriers are high and exit barriers are low.
When the threat of new entrants is minimal and exit is not difficult, returns are high, and risk is reduced in the event of poor performance.
Low entry barriers keep long-term profitability low, increasing competition and lowering prices and the market shares of exiting firms. |
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Term
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Definition
| threat of substitutes are: relative prices, costs of switching to a substitute, and customers' inclination to use a substitute. |
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Term
| As buyers' bargaining power increases... |
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Definition
| As the threat of buyers' bargaining power increases, the appeal of an industry to potential entrants decreases. |
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Term
| Factors affecting buyer bargaining power... |
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Definition
When purchasing power is concentrated in a few buyers or when buyers are well organized, their bargaining power is greater.
Low switching costs increase it.
Threat of backward integration increases it.
Increased when supplier's product is undifferentiated.
The less important the product to buyers, the more buyer bargaining power. |
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Term
| Suppliers' bargaining power is greater when... |
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Definition
Switching costs are substantial.
Prices of substitutes are high.
They can threaten forward (downstream) vertical integration.
They provide something that is a significant input to the value added by the buyer.
Their industry is concentrated, or they are organized. |
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Term
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Definition
| develop favorable, mutually beneficial relationships with suppliers or to diversify their sources of supply. |
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Term
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Definition
| generic strategy of entities that seek competitive advantage through lower costs and that have a broad competitive scope |
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Definition
| generic strategy of entities that seek competitive advantage through providing a unique product and that have a broad competitive scope |
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Definition
| generic strategy of entities that seek competitive advantage through lower costs and that have a narrow competitive scope |
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Definition
| generic strategy of entities that seek competitive advantage through providing a unique product and that have a narrow competitive scope (regional or smaller market) |
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Definition
| successful when the entity is the low-cost producer. However, the product tends to be undifferentiated in these cases, the market is often very large, and the competition tends to be intense because of the possibility of high-volume sales. |
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Definition
| involves competition based on product quality or process quality. |
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Definition
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Definition
| concerns the degree of freedom from detects |
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Definition
| may permit an entity to charge a higher price when the product is consistently delivered rapidly and on time. |
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Definition
| involves offering many different products. This strategy also may reflect an ability to shift rapidly from one product line to another. |
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Definition
| seeks to gain a competitive advantage and maximize customer value by providing services, especially post-purchase services such as warranties on automobiles and home appliances |
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Term
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Definition
| cost, quality, delivery, flexibility, and service |
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Term
| precommercialization (product development) stage & strategy |
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Definition
| strategy for this stage is to innovate by conducting R&D, marketing research, and production tests. During product development, the entity has no sales, but it has high investment costs. |
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Term
| introduction stage & strategy |
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Definition
slow sales growth and lack of profits because per-customer marketing and sales costs are high. Competitors are few and cost-plus prices are charged.
Strategy for this stage is to infiltrate the market, plan for financing to cope with losses, build supplier relations, increase production and marketing efforts, and plan for competition. |
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Term
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Definition
sales and profits increase rapidly, cost per customer decreases, customers are early adopters, new competitors enter, new product models and features are introduced.
Strategy for this stage is to penetrate the market, extend distribution channels, advertise to the mass market, and achieve economies of productive scale. |
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Term
| maturity stage & strategy |
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Definition
sales peak but growth declines, competitors are most numerous but may decline in number, and per-customer cost is low. Profits can be high or low.
Strategy for this stage is to defend market share and maximize profits through diversification to enter new market segments. Also, emphasize customer service. |
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Term
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Definition
sales and profits drop as prices are cut, and some entities leave the market; customers include late adopters (laggards), and per-customer cost is low.
Strategy for this stage is to withdraw by reducing production, promotion, and inventory. |
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Term
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Definition
| must identify potential customers and determine their needs |
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Term
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Definition
| benefits offered to satisfy customer needs |
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Definition
| quality, service, and price |
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Term
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Definition
| relation between the offering's perceived performance and the customer's expectations. High customer satisfaction tends to create high customer loyalty that results in repurchases. However, at lower satisfaction levels, customers are more likely to switch when a superior alternative becomes available. |
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Definition
| function of a customer's experience, marketing information, and other factors. Do not raise expectations above which can be satisfied. |
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Definition
| emotional as well as rational bond that develops when an entity provides high customer value. |
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Term
| How do you obtain high customer loyalty? |
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Definition
To obtain such loyalty, the entity needs to develop a value proposition that has superior competitiveness in the target market segment.
Must be supported by an effective value delivery system, the accumulation of all the experiences the customer has with the offering. Thus, brand value must be supported by core business processes that actually deliver the promised customer value. |
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Term
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Definition
| consists of the activities of an entity that create customer value and incur costs |
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Term
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Definition
| involve the entity's capture of materials to be processed |
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Definition
| include shipment of products, marketing and sales activities are the promotion ad sale of final products, service activities provide customer service. |
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| How do you sustain customer value? |
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Definition
| By always improving value-creating activities; benchmarking is a way to do this. |
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Definition
| consists of obtaining, distributing, and acting upon market intelligence. |
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Term
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Definition
| defines target markets and researches customers |
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Term
| customer relationship management (CRM) |
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Definition
process of managing detailed information about individual customers and carefully managing all of the customer touchpoints with the aim of maximizing customer loyalty.
seeks to increase the value of the customer base by developing long-term relationships with individual customers by such methods as customer service, customized offerings, and choice of marketing messages and media. |
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Definition
| relates to order processing, on-time delivery, and collection. |
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Term
| partner relationship management (PRM) |
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Definition
| involves coordinating with suppliers and distributors in this network (the supply chain) to provide better customer value. |
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Term
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Definition
| seeks out unfulfilled customer needs and customer groups who might be interested in the entity's existing products |
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Definition
| brings the products to the attention of the targeted customers and closes the sale |
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Definition
| provides after-the-sale support, such as product help and account information |
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Definition
| through customer satisfaction is a key to profitability. The entity should seek to minimize customer churn (customer loss). |
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Term
| Which is less costly? Finding new customers or retaining customers? |
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Definition
| Repeat customer is less costly than a new customer and is more likely to provide helpful feedback. |
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Term
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Definition
| percentage of customers that give the company repeat business. Higher retention rate is better because longer-term customer relationships are more profitable. |
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Term
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Definition
| NPV of the cash flows related to a particular customer. |
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Term
| Is it cheaper to regain lost customers or to attract new ones? |
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Definition
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Term
| customer profitability analysis |
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Definition
| determines all revenues and all costs assignable to specific customers. |
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Term
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Definition
| most profitable (highest investments) |
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Definition
| profitable (high investment with the goal of converting to platinum) |
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Definition
| low profitability but desirable (lower investment) |
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Definition
| not profitable nor desirable |
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Term
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Definition
| NPV of the cash flows related to a particular customer. |
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Term
| Is it cheaper to regain lost customers or to attract new ones? |
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Definition
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Term
| customer profitability analysis |
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Definition
| determines all revenues and all costs assignable to specific customers. |
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Term
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Definition
| most profitable (highest investments) |
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Term
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Definition
| profitable (high investment with the goal of converting to platinum) |
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Definition
| low profitability but desirable (lower investment with the goal of converting to gold) |
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Definition
| not profitable nor desirable |
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Term
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Definition
determination of what is to be done and of how, when, where, and by whom it is to be done.
Establishes the means by which organizational plans can be created. |
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Term
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Definition
| serves to direct the activities that all organizational members must undertake and successfully perform to move the organization from where it is to where it wants to be (accomplishment of its objectives). |
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Term
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Definition
extends throughout the organizational hierarchy and ties together the parts of the organization so that the various means all focus on the same end.
One organizational level's ends provide the next higher level's means. |
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Term
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Definition
| identifies relationships between an individual's job objectives and the immediate superior's objectives. Thus, the subordinate can understand how his/her job is the means by which the superior's job is accomplished. |
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Term
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Definition
| includes strategic budgeting; it has a horizon of 1 to 10 years or more. Such planning is difficult because of uncertainty about future events and conditions. |
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Term
| What must be done first? Strategic planning or strategic budgeting? |
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Definition
| An entity must complete its strategic plan before any specific budgeting can begin. The strategic plan states the means by which an entity expects to achieve its stated mission. |
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Term
| strategic analysis factors |
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Definition
Identifying and specifying organizational objectives.
Evaluating competitive advantages and weaknesses of the organization and its competitors.
Assessing risk levels.
Identifying and forecasting the effects of external factors relevant to the organization (forecasting is the basis of planning).
Deriving the best strategy for reaching the objectives, given the organization's strengths and weaknesses and the relevant future trends.
Capital budgeting
Capacity planning |
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Term
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Definition
| a planning process for choosing and financing long-term projects and programs. |
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Term
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Definition
| an element of planning closely related to capital budgeting that includes, among other things, consideration of business combinations or divestitures. |
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Term
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Definition
| underlying assumptions about the expected environment in which the strategic plan will be carried out; should be limited to those crucial to the success of the plans. Must be considered at all levels of the organization. |
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Definition
| general planning assumptions |
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Definition
| With size and style of organization. |
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Definition
| degree to which the objective is accomplished (doing the right things) |
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Definition
| maximizing the output for a given quantity of input (doing things right) |
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Definition
| clearly and specifically stated, communicated to all concerned parties, and accepted by those affected. |
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Term
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Definition
| objectives should be established at the top and retranslated in more specific terms as they are communicated downward in the means-end hierarchy. |
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Term
| What's the next step after planning and objectives? |
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Definition
| Developing policies, procedures, and rules. |
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Term
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Definition
| policies and procedures anticipate and provide guidance on how an activity should be performed to best ensure that an objective is achieved. |
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Term
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Definition
| general statements that guide thinking and action in decision making; policies may be explicitly published by, or implied by the actions of, management. |
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Term
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Definition
| specific directives that define how work is to be done |
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Term
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Definition
| specific, detailed guides that restrict behavior |
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Term
| management by objectives (MBO) |
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Definition
| behavioral, communications-oriented, responsibility approach to management and employee self-direction. It is a comprehensive management approach and therefore is relevant to planning and control. |
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Term
| MBO philosophy concerning employees |
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Definition
Want to work hard if they know what is expected
Like to understand what their jobs actually entail
Are capable of self-direction and self-motivation |
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Term
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Definition
Senior management participation and commitment to the program. These managers must
Determine the overall direction and objectives for the organization
Communicate these effectively in operational or measurable items
Coordinate subordinates' objectives with overall objectives
Follow up at the end of the MBO cycle period to reward performance and review problems
Integration of objectives for all subunits into a compatible, balanced system directed toward accomplishment of the overall objectives.
Provisions for regular periodic reporting of performance toward attainment of the objectives.
Free and honest communication between supervisor and subordinate.
A commitment to taking the ideas of subordinates seriously on the part of supervisors.
An organizational climate that encourages mutual trust and respect. |
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Term
| steps necessary to implement the MBO program |
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Definition
| include establishing objectives and action plans (the planning steps) and periodic review and final appraisal (the control steps). |
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Term
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Definition
| planning tool, control tool, motivational tool (realistic and degree of flexibility), means of communication and coordination |
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Term
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Definition
written plan for the future that forces management to evaluate the assumptions used and the objectives identified in the budgetary process.
Companies that prepare budgets anticipate problems before they occur.
budgeting is a strategic control because it quantifies an organization's progress towards fulfilling its strategic objectives. |
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Term
| How are objectives achieved? |
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Definition
| careful planning about the allocation of resources and the expected results. |
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Term
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Definition
| includes the company's current market share, governmental regulatory measures, the labor market, and the activities of competitors. |
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Term
| How does the budget work? |
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Definition
| specific revenue targets and expense limitations for each functional area and department of the organization on a month-by-month basis. |
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Term
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Definition
for a budget to be useful, it must be finalized when the fiscal year begins.
It usually takes several months to create an organization-wide budget. |
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Term
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Definition
| schedule of activities for the development and adoption of the budget; includes a list of dates indicating when specific information is to be provided to others by each information source |
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Term
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Definition
| schedule of activities for the development and adoption of the budget; includes a list of dates indicating when specific information is to be provided to others by each information source |
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Term
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Definition
| everyone involved in preparing the budget at all levels must be educate on the detailed procedures for preparing and submitting their part of the overall budget |
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Term
| Does participative budgeting or top-down budgeting work better? |
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Definition
| has a much greater chance of acceptance by those affected and thus of achieving ultimate success than does a budget imposed from above. |
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Term
| What's the key to budget success? What's another key to success? |
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Definition
That senior management immediately buys into it and takes it seriously.
Accomodation to change as assumptions change. |
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Term
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Definition
Establishing standards of performance (the budget)
Measuring actual performance
Analyzing and comparing performance with standards
Devising and implementing corrective actions
Reviewing and revising the standards |
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Term
| Important reason for a budget |
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Definition
| provide standards for the assessment of success or failure of individual managers and functional areas. |
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Term
| top-down (authoritatitve) budgeting approach |
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Definition
| apparent advantage of ensuring total consistency across all functional areas; also far less complex and time-consuming than coordinating input from the middle and lower levels. |
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Term
| Participative budgeting adv. and disadv. |
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Definition
Adv. uses input from lower- and middle-levels, and it directly communicates rewards and penalties to employees for good/bad performance.
Disadv.: cost in time and money. |
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Term
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Definition
| overestimation of expenses or underestimation of revenues; must be avoided if a budget is to have its desired effects. |
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Term
| tendency of managers when budgeting |
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Definition
| The natural tendency of a manager is to negotiate for a less stringent measure of performance so as to avoid unfavorable variances from expectations. |
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