BUS501 Study Guide

Navigating this Study Guide

Study Guide Structure

In this study guide, the sections in each unit (1a., 1b., etc.) are the learning outcomes of that unit. 

Beneath each learning outcome are:

• questions for you to answer independently;
• a brief summary of the learning outcome topic; and
• and resources related to the learning outcome. 

At the end of each unit, there is also a list of suggested vocabulary words.

How to Use this Study Guide

1. Review the entire course by reading the learning outcome summaries and suggested resources.
2. Test your understanding of the course information by answering questions related to each unit learning outcome and defining and memorizing the vocabulary words at the end of each unit.

By clicking on the gear button on the top right of the screen, you can print the study guide. Then you can make notes, highlight, and underline as you work.

Through reviewing and completing the study guide, you should gain a deeper understanding of each learning outcome in the course and be better prepared for the final exam!

Unit 1: Introduction to Strategy

1a. Define strategy in its many forms

• How is strategy defined?
• What strategic contexts should be considered when developing strategy?
• How do a business model, value proposition, and strategic portfolio influence an organization's strategy?

Strategy is defined as the determination of an organization's basic long-term goals and objectives and the courses of action adopted to carry out the goals and objectives – for example, reallocating resources. Key terms related to strategy include business model, which is the overall approach to competing in an industry. Value propositions are the reasons customers choose to do business with one firm rather than other acceptable alternatives. Strategies are sustained and purposeful initiatives in pursuit of specific organizational goals. The strategic portfolio is the market presence created by the sum of a firm's business activities. Strategic contexts are those aspects that impact how strategic decisions are made, which include economic factors, societal factors, internal factors (such as strengths and weaknesses), and external factors (such as industry opportunities and threats). Strategic contexts are important to keep in mind because no organization makes strategic decisions while only considering one context; they must consider multiple contexts to be successful.

To review, see Introduction to Strategic Management, Identifying Strategy, and Porter's Five Forces.

1b. Discuss the participants in strategy as a hierarchy

• What are the aspects of a strategic hierarchy?
• How do mission, values, objectives, and metrics relate to the hierarchy?
• What importance do metrics play in the strategic hierarchy?

In simple terms, a strategic hierarchy is a model that illustrates the relationship of corporate strategy to an organization's business units and management strategies. In other words, the organization has several strategies that tie into their overall strategy. For example, Yum! Brands, Inc is an organization that owns Kentucky Fried Chicken, Taco Bell, and other food chains – these units have different strategic missions and management styles. The aspects of the strategic hierarchy include the global strategy, then the sub-strategies: marketing strategy, financial strategy, human resources strategy, information strategy, material resource strategy, and organizational development strategy. Within each of these, there should be a mission, values, and objectives tied to each strategy and the overall global strategy. There should also be metrics within each strategy that ask how to know if the strategy worked. This is important because when we develop a strategy, we want to be sure we can measure the success of the strategy later.

To review, see The Hierarchy of Strategies.

1c. Analyze market structures

• What are the four types of market structures?
• What elements of each market structure make it different from the rest?
• What company/product examples can you think of that would be considered pure competition?

There are four main market structures: pure competition, imperfect or monopolistic competition (not to be confused with a monopoly), oligopoly, and monopoly. A market structure in economics refers to how different industries are classified based on their degree of competition. Pure competition is a market in which many sellers exist, products are homogeneous, and there is an ease of entry into the market (for example, agricultural products). Imperfect or monopolistic competition is when there are many sellers, the products are differentiated, and there is ease of entry (for example, a hair salon or restaurant) – not to be confused with a monopoly. Oligopoly is when few sellers exist, products are identical, and entry into the market is difficult (because it may be expensive, such as in the oil industry). A monopoly exists when there is only one seller, no close substitutes, and difficult entry into the market (such as an electric company).

To review, see Market Structure and Other Market Structures.

Unit 1 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• business model
• imperfect/monopolistic competition
• market structure
• monopoly
• oligopoly
• pure competition
• strategic hierarchy
• strategic portfolio
• strategy
• value proposition

Study Session: Unit 1, Part 1

Study Session: Unit 1, Part 2

Feel free to review the rest of Unit 1 of the Study Guide at your own pace.

Unit 2: Strategic Planning

2a. Describe how organizational goals are established

• What is the POLC framework?
• What does each step in the POLC framework involve?
• How is the POLC framework used to create the organizational goals?

The POLC framework stands for planning, organization, leading, and controlling. These steps are used to help develop larger organizational goals and determine how resources should be allocated to make these goals a reality. Planning involves setting the mission and vision, strategizing, and setting goals and objectives to help you reach your bigger mission. The organizing aspect revolves around organizational design, culture, and social networks. Leading means making good decisions, communicating well, and motivating your people to reach goals. The controlling aspect means creating systems and processes and ways you can measure the outcomes of your goals. All areas of the POLC framework are important because they are the steps you will take to set your goals.

To review, see Developing Mission, Vision, and Values.

2b. Identify internal and external factors that impact strategic planning

• What is SWOT analysis used for?
• What elements of SWOT would be considered internal factors of the organization?
• What elements of SWOT would be considered external factors of the organization?

A SWOT analysis is used ahead to help the organization see where their strengths, weaknesses, opportunities, and threats lie within the environment they operate. This helps set the stage for the strategic planning that will come later. Strengths and weaknesses would be considered internal factors, while opportunities and threats are external factors – both factors could positively or negatively affect your business.

To review, see An Overview of SWOT Analysis and How to Conduct a SWOT Analysis.

2c. Apply the appropriate strategic management tools based on internal and external analysis

• What do PEST and PESTLE stand for?
• Why is a PEST or PESTLE analysis used?
• What are the differences between PESTLE and PEST?

PEST stands for political, economic, social, and technological elements. A PEST analysis is performed before developing the strategic plan to consider external factors that may affect an organization. PESTLE stands for political, economic, sociological, technological, legal, and environmental elements. A PESTLE analysis is used similarly to a PEST analysis but adds legal and environmental elements. Using these tools in conjunction with SWOT analysis is a good basis for strategic planning.

To review, see PESTEL: A Framework for Considering Challenges.

Unit 2 Vocabulary 

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• controlling
• leading
• organizing
• PEST analysis
• PESTLE analysis
• planning
• POLC framework
• SWOT analysis

Study Session: Unit 2, Part 1

Feel free to review the rest of Unit 2 of the Study Guide at your own pace.

Study Session: Unit 2, Part 2

Feel free to review the rest of Unit 2 of the Study Guide at your own pace.

Unit 3: Creating Competitive Advantage

3a. Explain the meaning of competitive advantage

• How do you define competitive advantage?
• What generic strategies revolve around larger markets?
• Which generic strategies revolve around narrow markets?

Competitive advantage is the attribute that allows a business to outperform its competitors within an industry, such as access to new technology or rare natural resources. Michael Porter, a professor at Harvard Business School, identified three strategies that businesses can use to tackle competition: overall cost leadership strategy means to be the low-cost provider when compared to competitors; differentiation strategy means to do something innovative that makes people willing to pay more for your product: and, focus strategy means to targets a very narrow market (this strategy can also be called the segmentation strategy). These strategies are summarized in this image.

To review, see Competitive Advantage, Generic Strategies for Competitive Advantage, and Porter's Competitive Strategies.

3b. Describe the factors that create competitive advantage

• What is the Delta Model?
• What are the two main ways companies create a competitive advantage?
• How do products along the value chain create a competitive advantage?
• What elements are added to products along each step of the value chain?

The Delta model addresses system lock in as a source of competitive advantage. This refers to barriers for competitors to compete for customers. In a best product advantage, the focus is on being the lowest-cost provider. In a total customer solution strategy, the organization redefines the customer experience. A company has two main ways to create a competitive advantage. First, they can reduce costs, such as production costs, and keep their revenues consistent. Second, they can keep costs constant while increasing revenues by providing more value to consumers – this is achieved through the idea of a value chain. A value chain charts the path by which products and services are created and sold to customers. In other words, as each step in the chain is completed, the product or service becomes more valuable than it was at the previous step. For example, a company that harvests lumber and makes it into boards creates value along the chain by making the tree usable in the form of boards for construction.

To review, see The Value Chain, Competitive Advantage, and The Delta Model.

3c. Apply Total Quality Management to strategic management principles as a best practice

• How does Total Quality Management relate to competitive advantage?
• What can organizations do to leverage Total Quality Management to gain a competitive advantage?
• How can employee involvement assist in creating a competitive advantage?

Total quality management (TQM) is the organization-wide management of quality, including facilities, equipment, labor, suppliers, customers, policies, and procedures. This concept promotes the view that quality improvement never ends, and it provides a strategic advantage to organizations. TQM has seven basic elements: a focus on customers, focus on continuous improvement, employee involvement, quality tools, product design, process management, and supplier quality.

To review, see Business Fundamentals.

Unit 3 Vocabulary 

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• best product advantage
• competitive advantage
• cost focus strategy
• cost leadership
• customer solution strategy
• differentiation focus
• differentiation strategy
• system lock in
• Total Quality Management (TQM)
• value chain

Study Session: Unit 3, Part 1

Feel free to review the rest of Unit 3 of the Study Guide at your own pace.

Study Session: Unit 3, Part 2

Feel free to review the rest of Unit 3 of the Study Guide at your own pace.

Unit 4: Corporate Strategy

4a. Explain commonly used corporate strategies 

• When might an organization use horizontal integration?
• What are the advantages of diversification for a company?
• In what situations do you think a company would use a retrenchment strategy?

A growth strategy aims to fuel growth in revenues and earnings. Growth strategies include horizontal integration, which is a merger or acquisition of a new business. They can engage in vertical integration, which occurs when a company integrates successive stages in the production and marketing process. For example, when a gas station acquires an oil refinery. Diversification is a strategy in which a company acquires or establishes a business other than what it currently does. A retrenchment strategy is when an organization shrinks one or more business units. Often this means to lay off employees and, in other words, get smaller. The McKinsey Matrix is a tool to help organizations determine market attractiveness and their own competitive strength. As you can see from the graph below, organizations look at each business unit and put that business unit in the correct place in the matrix, depending on how attractive the market and industry are.
 

To review, see Growth Strategy, Strategies for Getting Smaller, and The GE Approach.

4b. Analyze which strategy alternatives will create the most value 

• Why do companies analyze internal and external strengths/weaknesses before developing a strategy?
• Why do you think the concept of market share is important when determining your company's strategy?
• What strategy would you likely choose if you have a narrow market scope?

When considering which alternatives to use for strategy, it is important to do the external and internal analysis first, such as SWOT and PESTLE analysis as discussed in a previous unit. Once you determine where your organization stands, you are better positioned to determine which of Porter's Competitive strategies to use. Also, when you can understand your competitive advantage, you can choose the correct strategy. As you may remember, Porter's strategies consist of two main differences: the market scope, and the uniqueness of the product. If you find your organization can better compete on price, perhaps through TQM measures, you may want to use a cost leadership strategy. If you find the market scope is small for a particular product or service, you may want to use a segmentation strategy to find markets that larger firms don't tap. Market share is the percentage of a specific market held by a company. Porter also explains that, within these strategies, there is potential for a "hole in the middle," which refers to companies with moderate market share – in other words, they are stuck with neither a high market share nor successful differentiation strategies if the market share is lower. This isn't to say a company always needs to have a high market share to be profitable. Many companies can be profitable by having a low market share, as long as the segmentation/differentiation strategy is effective. In summary, it is necessary to:

1. Understand where your company is in terms of its competitive advantage.
2. Determine the type of market you are competing in
3. By applying Porter's strategies, decide how you can leverage your competitive advantages within that market.

To review, see The GE Approach.

4c. Relate strategy theory to specific applications 

• What is the difference between a stakeholder and a stockholder?
• How do organizations evaluate specific strategies before implementation?
• What factors of suitability, feasibility, and acceptability are important when analyzing a strategy?

Once your organization decides on a strategy, you should consider Johnson, Scholes, and Whittington's model for evaluating specific strategy options. Their model posits that options should be evaluated upon suitability, feasibility, and acceptability. Suitability refers to the overall rationale of the strategy. Sometimes a SWOT analysis is used to see if the proposed strategy fits with the organization's mission. Suitability analysis considers the best way to leverage the company's competitive advantages. Feasibility refers to the availability of resources for the company to implement the strategy. In other words, is there the capital, time, expertise, and human capital to make the strategy a reality? Acceptability refers to the idea that we need to meet stakeholders' expectations. A stakeholder has a vested interest in the success of a business (not to be confused with a stockholder – who actually owns part of the company). This may include suppliers, employees, and customers.

Another way organizations determine which strategy to choose, given all of the information they have, is through analysis using Mulcaster's Managing Forces Framework. This framework addresses forces that should be considered before moving forward with a specific strategy. Please note that some of these things you may have already analyzed in what will affect your business. These are focused more on looking at a specific strategic option and applying the framework to each strategy you are considering. These forces include time, opposing forces, politics, perception, holistic effects, adding value, incentives, learning capabilities, opportunity cost, risk, and style.

To review, see The GE Approach.

Unit 4 Vocabulary 

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• diversification
• horizontal integration
• market share
• retrenchment strategy
• segmentation strategy
• stakeholder
• vertical integration

Study Session: Unit 4, Part 1

Feel free to review the rest of Unit 4 of the Study Guide at your own pace.

Study Session: Unit 4, Part 2

Feel free to review the rest of Unit 4 of the Study Guide at your own pace.

Unit 5: 21st-Century Strategy

5a. Apply modern strategic management techniques in a globalized environment 

• How does organizational culture impact strategy?
• What elements of a Theory Y management style are most necessary to successful strategy implementation?
• How do international trade concepts impact strategy?

Now that you understand how companies determine their strategies, let's explore what should be considered to successfully apply a strategy. First, you'll want to consider the organizational culture. Organizational culture refers to the beliefs, values, behavior, and material objects that constitute a way of doing business.

It is also important to consider managerial and leadership theories since you will depend on your people to help you execute the strategy. McGregor addresses theory x and theory y in the context of management. Theory X managers believe workers need to be watched and told what to do, in other words, micromanaged. Theory Y managers believe empowering employees can help meet organizational goals because they assume their employees are self-disciplined, self-motivated, and capable of being committed to the organization. You can see where these theories are important in strategy because you need your people to help you reach organizational goals.

Another important aspect of applying strategic management is the consideration of global operations and international trade. International trade theory relates to what types of products and services countries should produce, based on what they can do well and most efficiently. For example, according to Porter, we need to consider international trade in the context of the market conditions in a particular region or country, look at the demand for the product or service in that country, determine if the country or region has the necessary suppliers to produce the product or service, and the local strategy that will be applied when doing business in that country. Since many organizations are global, international trade and global business may be important in the overall organizational strategy.

To review, see Organizational Culture, MacGregor's Theory X and Theory Y, and What Is International Trade Theory?.

5b. Choose the best alternative strategy under technological uncertainty 

• What is the diffusion of innovation?
• Why do you think diffusion of innovation is important when developing a strategy?
• Which consumer group would you consider yourself to be when adopting new technology?

Diffusion of innovation theory seeks to explain how, why and at what rate new ideas and technology spread through cultures. Understanding diffusion of innovation theory can help you choose the correct strategy in the constantly changing world of technology. For example, suppose you believe that a new technology your company intends to sell will not be widely accepted at first. This means you know that it is likely a narrow market, which informs you what Generic strategy you might want to choose (differentiation). Of course, as your product becomes more widely accepted, you may need to implement a different strategy, such as cost leadership. As you can see from this chart, the bottom notes the groups of people adopting a particular innovation. You can see how the market share increases as more people adopt the new technology on the right.

To review, see The Diffusion of Innovation.

5c. Synthesize strategy options to maximize competitive advantage 

• What is design thinking?
• How is the business model canvas used to generate innovation in an organization?
• Why is innovation an essential part of a strategy?

The idea of innovation is an important thing to remember when applying an internal and external analysis (SWOT and PESTLE), determining your competitive advantage(s), and creating a Generic strategy. Companies must continually innovate to obtain and sustain competitive advantages in today's fast-changing global world. Innovation "ingredients" include design thinking, lean startup, business model canvases, and agility. Design thinking allows us to generate new ideas, and lean startup is focused on elements needed in the organization to support the innovations. Business model canvas is a way organizations can apply their competitive advantages to develop new ideas. Agility is focused on the ability to find ways to continuously deliver new products, services, and features to the customer. You can see a summary of each of these elements below. The top left quadrant addresses lean startup and the process for design thinking. The right quadrant addresses the business model canvas, and the bottom left illustrates agility. Considering innovation is key to creating a strategy and finding new competitive advantages in the market.

To review, see A Four-Part Recipe for Sustaining an Innovation Pipeline and The Diffusion of Innovation.

Unit 5 Vocabulary 

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• diffusion of innovation theory
• organizational culture
• Theory X
• Theory Y

Study Session: Unit 5, Part 1

Feel free to review the rest of Unit 5 of the Study Guide at your own pace.

Study Session: Unit 5, Part 2

Feel free to review the rest of Unit 5 of the Study Guide at your own pace.

Course Review