Welcome to Class 2
Overview
&
Corporate Governance: Part One
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
The success or failure of any organization is dependent upon a
number of factors but none is more important than its
governance and its governing body
 Effective corporate governance
Balances the interests of :
Customers, employees, managers, owners, and other
stakeholders of the firm
 The governing body consists of:
Stockholders, Management, & Board of Directors
Governance: Issues and Concerns (Continued)
Corporate Governance = the processes, customs, policies,
and procedures of a firm as well as the governing body that is
responsible for its direction, management, and control.
The governing body of a firm includes a combination of Top
Management Teams (TMT) and the board of directors
but…
 in most instances the TMT dominates the entire decisionmaking process.
Corporate Governance
Leadership
Processes
Procedures
Corporate
Governance
Policies
Customs
Governance: Anchor Points
The anchor points for corporate governance and the
strategies for planning, directing, and controlling the
firm are identified in the organization's vision and
mission statements.
A firm's vision, mission, and strategy are symbiotic and
dynamic.
• VMS is an abbreviation for a firm’s
Vision, Mission, & Strategy
Vision-Mission-Strategy
Vision
VMS
Strategy
Mission
Vision and Mission
The Vision and Mission statements of a corporation are
important anchors that communicate "what a firm wants to
be" and "what the firm does."
These anchors provide a stable identity analogous to a nation's
constitution. They are an expression of a firm’s values and
beliefs about its responsibility as a corporate citizen.
They 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.
A firm's strategic plan is an extremely 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)
The resource-based view assumes that management competency
combined with a unique set of firm resources and capabilities = the
chief determinant in the ability to provide above average returns to
investors.
A firm’s physical, financial, intangible, intellectual, and leadership
resources will determine the degree of its success.
 Under the R/B Model, assessments of conditions and situations in the
internal environment assume paramount importance to
strategic planning.
(1) Resource-based View (Cont)
Assumptions of the R/B model:
1. Strategies are dictated by the firm’s unique
resources and capabilities
2. Strategies should include searching for an environment in
which the firm’s resources and capabilities can be
appropriately exploited.
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)
The industry/organizational view assumes the industry in which a
firm competes = the primary determinant in the ability to grow
and provide above average returns to investors.
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
 Under the I/O Model, assessments of conditions and situations in
the external environment assume paramount importance in
strategic planning.
I/O Model (Cont)
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. Organizational decision makers are assumed to be rational
and committed to acting in the firm’s best interests (profitmaximizing)
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 is the intellectual disciplined process of eliminating
bias as one conceptualizes, synthesizes, analyzes, and evaluates
information gathered by observation and/or experience.
It involves a process of visualizing situations from a variety of
perspectives and reflecting, reasoning, and communicating
conclusions in clear and logical manner.
It is a process where clarity, accuracy, and consistency are priorities
while prejudice and data distortion are guarded against as
conclusions are carefully reasoned and precisely communicated.
10 dimensions to Critical Thinking:
 1. Depth
 2. Breadth
 3. Precision
 4. Consistency
 5. Relevance
 6. Sound evidence
 7. Good reasoning
 8. Clarity
 9. Accuracy
 10. Fairness
Summary of KSAs
Knowledge = Literacy
The degree to which the TMT demonstrates its knowledge and
understanding of the hierarchical dimensions of business including
theoretical, technical, financial, and managerial aspects
Skill = Manage/Administrate
Management skills or skills-set: The degree to which TMTs have
mastery of the three primary skills of persuasion.
Ability = Critical Thinking
The degree to which the TMT demonstrates the ability to think
quickly and critically. It is their ability to contemplate the probable
consequences of decisions and envision action-alternatives. They
can objectively contemplate, deliberate, and evaluate situations,
conditions, and achievements.
End Corporate Governance: Part One
To Be Continued in Class 3:
TMT Responsibilities, SWOT Analyses, Strategic
Intent, Formulation, Implementation, and
Management
Homework:
(1) Re-Read Chapter 1 in your online textbook
(2) Elect Team Officers: -- President
--Vice President
-- Secretary