Welcome to Class 2
Overview
&
Corporate Governance
Chapter 1
Overview of Course & Textbook
Course is divided into
Concepts and Activities
Concepts are divided into
Management issues and Strategy issues
Activities are divided into
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:
Management
Strategy & Performance
Online: http://www.campus-hq.com/
Research, Analyze, and Report
Raymond K. Van Ness
5th Edition
The Management Textbook is divided into three distinct segments
Governance &
Nature of Strategy
Nature of Corporate
Performance
Demystification of Financial Data;
Measuring, Assessing, & Reporting
Top Management
Teams (TMT)
(1)
Introduction to
Corporate Research
(5)
Stakeholder Perspective
(9)
Business Environments
(2)
Research
Methodologies
(6)
Creating Value
(3)
Corporate Boards
(4)
Ch 1, 2, 3, 4
Financial Demystification
(10)
Performance Scorecard
(11)
Qualitative Research
(7)
Measurements & Meanings
(12)
Financial Research
(8)
Performance Scoring & Report Drafting
(13)
Formalizing The Performance Report
(14)
Ch 5, 6, 7, 8
Ch 9,10, 11,12, 13,14
Each Chapter addresses specific questions
Chapter 1: Who is running the company and what should they know
and do?
Chapter 2: What is the business climate and what must firms do to
compete successfully?
Chapter 3: How do firms add value & whom must they satisfy?
Chapter 4: What are the mechanisms for overseeing TMT behavior and
decision-making?
Chapter 5: What is corporate research?
Chapter 6: How can “we” do corporate research and why is it important?
Chapter 7: How do “we” research the social side of performance &
TMT’s strategic planning?
Chapter 8: What do “we” need to know to investigate financial
performance?
Each Chapter addresses specific questions
Chapter 9: Why do different people assess a firm’s performance
differently?
Chapter 10: Why are financial reports confusing and how can they be
made understandable?
Chapter 11: What is a functional tool for standardizing financial
reports?
Chapter 12: What do all the ratios mean and how can they be used
effectively?
Chapter 13: What is an easy and effective way of quantifying a firm’s
performance?
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.
Management
Strategy & Performance
Research, Analyze, and Report
Raymond K. Van Ness
5th Edition
Note: A security code will be provided by the
publisher that MUST be included on your
final semester project.
The PSC software will be provided by the publisher when you
acquire your online textbook package.
A Closer look ….
Corporate
Governance
Corporate Governance
Corporate Governance
1. Consists of the processes, customs, policies, and procedures of a
firm as well as the governing body that is responsible for its
direction, management, and control.
2. Should balance the interests of: Customers, employees,
managers, owners, and other stakeholders
GOVERNING BODY consists of:
1. Stockholders
2. Management
3. Board of Directors
Corporate Governance
Leadership
Processes
Procedures
Corporate
Governance
Policies
Customs
Governance: Anchor Points
• VISION
• MISSION
• STRATEGY
Vision
VMS
Strategy
Mission
Vision and Mission
The Vision and Mission statements are anchors that:
1.
2.
3.
4.
Communicate "what a firm wants to be"
Communicate "what the firm does.“
Provide a stable identity analogous to a nation's constitution.
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 Objectives
Performance
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
Performance Objective Ladder
1
2
3
• Strategic Competitiveness (Initial Competitive Advantage)
• Sustainable Competitive Advantage
• Recurrent Above Average Returns
1. 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 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 continuously performing its value
generating activities more effectively and efficiently than its
rivals.
Sustainable competitive advantage is the second rung on the
competitive ladder – it means "commercial staying power."
3. Recurrent Above Average Returns [RAAR]
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 on the performance objective ladder.
Recurrent Above Average Returns
are earned only by firms that have
ACHIEVED
and
SUSTAINED
a competitive advantage for
an extended period of time.
Remember: Sustainable = Recurrent Potential
Sustained = Recurrent Achievements
Above Average Returns
&
Strategic Levels
Competitive Advantage, Above Average Returns, and
Strategic Levels
BUSINESS level:
Competitive Advantage and above average returns at the “business”
strategic level = high profits + satisfied customers.
CONGLOMERATE level:
Competitive Advantage and Above Average Returns at the
“conglomerate” strategic level = successful & synergistic subsidiary
businesses. (Portfolio of businesses)
Conglomerate level strategy is also called corporate level strategy
Performance:
Theoretical Models
Performance: Theoretical Models
Conflicting Theories about
The Primary Factors Dictating a Firm’s Success or Failure
In achieving RAAR
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
(1) Resource-based View (R/B Model)
Assumptions of the R/B model:
1. Performance objectives are dictated by the firm’s unique
resources 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 model:
1. External 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 –
Competencies
From the R/B Model to the I/O Model –
Competent TMTs are essential
Skills
Knowledge
Ability
Managerial
Competence
Literacy = Knowledge
[Understand Concepts]
 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.
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
[Can Apply Concepts]
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
Skills of Persuasion
Management skills or skills-sets refer to both technical competence
and skills of persuasion. Good managers must not only demonstrate their
knowledge but also master the skills of persuasion.
Aristotle, the Greek philosopher, identified three methods of persuasion
and good managers have mastered each:
• Logos = Persuasion by reasoning
• Pathos = Persuasion by emotional appeal
• Ethos = 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.
Logos
Ethos
Pathos
Ability = Critical Thinking
[Can Apply Concepts with great expertise]
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.
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 expertly execute
5 Strategic Management Activities
TMT Strategic Management Activities
1. (SWOT)
Analyze the (internal & external) environments to assess the firm’s
a)
b)
c)
d)
Strengths
Weaknesses
Opportunities
Threats
 1. Scanning
 2. Monitoring
 3. Gathering Competitive Intelligence
2. (Strategic Intent)
Reaffirm or reestablish short & long-term goals and objectives
3. (Strategy Formulation)
Translate goals and objectives into tactical & strategic action plans
4. (Strategy Implementation)
Communicate and activate the tactical and strategic plans
5. (Strategy Management)
Assess interim successes & failures and adjust course as conditions merit
Core Operating Levels
Strategies are significantly different at
different core operating levels
• Business Level Models (1st Level)
versus
• Conglomerate Level (2nd Level)
Core Operating Models
1. First-level Corporations (business-level model)
Value creating and competitive advantage through:
 Marketing products and/or services.
2. Second-level Corporations (conglomerate-level model)
Value creating and competitive advantage through:
 Management of a portfolio of subsidiary companies.
Business-level model (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.
Four common methods of achieving DISTINCTIVENESS:
1. Uniqueness of product/service
2. Added or special components
3. Lower cost levels
4. Preferential delivery
DISTINCTIVENESS:
1. Provides customers a motive to purchase from a specific firm
2. Proves difficult for competitors to duplicate or imitate.
Business level strategic formulation is
guided by the firm’s competitive model.
Competitive Models:
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)
Conglomerate-level model (Second-level)
Competing and achieving sustainable competitive advantage at the
conglomerate-level means:
Producing “above average returns” by creating a portfolio of
synergistic businesses that have each achieved competitive
advantage 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 strategies involve an
extensive array of options.
Conglomerate-level strategists have options such as:
1. Joint ventures
2. Corporate partnering
3. Other types of collaborative activities
However, the most common strategy involves
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.
Corporate diversifications through
acquisitions are divided into:
1. Related Diversifications
(Those that are closely related to companies currently in the
portfolio)
2. Unrelated Diversifications
(Those that are significantly different from previously owned
subsidiaries)
End Corporate Governance
Homework:
(1) Read Chapter 2 in your online textbook
(2) Elect team officers: President, VP, Secretary
(3) Study online lecture notes!!!!
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. Goals are a general description of a performance aim
4. Objectives are the specific target within a goal or set of goals.